* Impact this time may be prolonged - Vice Fin Min
* To take swift action on markets if needed - Vice Fin Min
* North Korea has warned of war with South "at any moment"
* Tension weighs down on already faltering domestic economy
By Choonsik Yoo
SEOUL, April 5 South Korea's top finance
officials warned on Friday that tensions with North Korea could
have a prolonged impact on markets and vowed to ensure
stability, as the standoff threatened to put an additional drag
on Asia's fourth-largest economy.
At an emergency meeting to tackle the effects of the crisis,
they promised to take swift and strong action should the markets
lose stability. Reports of another meeting with the central bank
chief attending boosted investors' expectations of an interest
rate cut next week.
The Seoul stock market's benchmark KOSPI fell 1.7
percent to a 2-month low by 0233 GMT while the won
edged down 0.3 percent to a fresh 7-month low against the dollar
as investors reduced holdings ahead of the weekend.
"In the past, (markets) recovered quickly from the impact
from any North Korea-related event, but recent threats from
North Korea are stronger and the impact may therefore not
disappear quickly," Vice Finance Minister Choo Kyung-ho told the
North Korea threatened to strike U.S. military bases,
including those on the American mainland, and to shut down a
joint industrial complex with the South while denying entry to
the complex by South Korean workers this week.
The new threats, though not unusual from the reclusive
state, have been issued following the imposition of new U.N.
sanctions in response to North Korea's third nuclear test in
February. Up until now, reaction to them in markets has been
The increasingly tense standoff with North Korea, which has
said a nuclear war could break out at any time, could not happen
at a worse time for the government of new President Park
Geun-hye, whose first steps in office included a sharp cut in
President Park, in office just over a month, has ordered her
cabinet to draw up what is likely to be a large supplementary
budget to lower budget revenue projections and add new spending
plans aimed at jump-starting faltering domestic demand.
"The market usually doesn't get jittery over North Korea
threats. But this time is different, because they look willing
to sacrifice Kaesong, which has never happened before," said
Park Hyung-joon, macroeconomics team leader at Meritz
POSSIBLE INTEREST RATE CUT
Expectation has been growing among investors that the
central bank, the Bank of Korea, will lower interest rates at
its April 11 policy meeting to boost corporate investment and
Those expectations were fuelled by local media reports that
Governor Kim Choong-soo and Finance Minister Hyun Oh-seok were
attending Friday's economic policy consultation meeting,
alongside officials from the presidential office and the markets
The Bank of Korea cut the policy interest rate
by 25 basis points each in July and October last year, but has
since left it unchanged at 2.75 percent, citing some signs of
improvement in the advanced economies.
In a sign of increased worry over the latest tension,
General Motors Chief Executive Dan Akerson said on
Thursday the company was making contingency plans for employee
safety at its South Korean operations.
"Anything that goes on in Korea is critically important to
our global production," he said, adding in response to a
question that it was fair to say further increases in tensions
would promptt GM to look at moving production elsewhere long