March 26, 2010 / 5:58 PM / 10 years ago

S.Korean won, CDS weaken after Naval incident

NEW YORK, March 26 (Reuters) - The South Korean won dropped against the U.S. dollar on Friday after reports a South Korean naval vessel sank with several dead, according to local media citing a South Korean navy official.

Initial reports that the sinking ship may have been torpedoed by North Korea were played down by South Korean government officials who said it could not conclude if the reclusive North was behind the attack. For more see [ID:nSGE62P0GW]

The won sank roughly 0.45 percent against the U.S. dollar to trade around 1144 from 1138.82 according to multiple market sources.

The price to insure Korean sovereign debt rose to 83 basis points from 78 basis points in the wake of the news, according to two trading sources. That means the cost to insure $10 million in South Korean debt increased by $5,000 to $83,000.

“The news is still dissipating throughout the market and given the fact there has been casualties of a relatively serious magnitude, it has the potential to turn into a broader risk issue,” said Imran Ahmad, emerging market strategist at RBS in London. “Credit spreads widening and the currency weakening might be the reaction come Monday.”

“In the case we don’t have some sort of clear news from that investigation over the weekend, Korean assets potentially have a weakening bias,” Ahmad said. “Now it seems contained, not reverberating to global risk appetite, but something to monitor closely over the weekend.”

A U.S. official, citing the South Korean government said at least 58 people were rescued from ship and that the United States was not involved in the rescue effort.

Additional reporting by Jennifer Ablan Editing by Theodore d'Afflisio

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