SOUTH KOREA EXPECTS FOREX RESERVES TO HIT RECORD HIGH

South Korea's foreign exchange reserves are expected to hit a record-high of US$270 billion this year, bolstered by the local currency's gains and an expanding current account surplus, the finance ministry said Sunday.

The Ministry of Strategy and Finance predicted Korea will continue adding to its reserves in the second half, pushing their total value past the current record of $264 billion, reached in March last year.

"South Korea's FX reserves will possibly exceed the previous record as the country is expected to continue to log massive surpluses in the current account, and the stabilization of the local currency is also forecast to add to the value of the reserves," an official from the ministry said.

The country's foreign exchange holdings increased for a fourth month to $231.7 billion in June, the highest level since September.

They sank to the lowest level in nearly four years in November as the government handed out foreign currency funds to local banks, who were struggling to service their debts because of the Korean won's sharp depreciation and a global credit crunch.

The reserves began to gain in March as the country registered current account surpluses.

The surplus reached the second-highest level ever at US$5.43 billion in June, after rising for a fifth straight month on reviving exports.

The won has made a remarkable recovery in that time, climbing almost 28 percent against the U.S. dollar since hitting an 11-year low in early March.

This has helped to lift reserves by driving up the value of assets denominated in foreign currencies.

The reserves will also get a boost from the government's plan to retrieve foreign currency funds extended to the banking system as well as its issuance of around $3 billion foreign-exchange stabilization bonds, scheduled for the second half of the year, the ministry said.

Adding to the optimism, data by the International Monetary Fund showed South Korea's reserves grew at the second-fastest pace among member countries.

The country's holdings rose by $14.3 billion at the end of May from a month earlier, the fastest clip after Russia.

The data excluded China due to an absence of available statistics.

"Government authorities generally favor higher FX reserves since the global financial crisis in September although they were previously concerned about excessive holdings," a finance ministry official said.