SEOUL, Nov. 4 (Xinhua) -- Emerging economies, including South Korea, are likely to face a financial bubble mainly due to the weakening U.S. dollar, a local think tank said Wednesday.

    "As the global financial crisis is on the wane, investors are shunning away from the risk-free U.S. dollar, which is adding to the weakening of the U.S. dollar," Park Hyun-soo, senior fellow at the Samsung Economics Research Institute (SERI), said in a recent report.

    "A 1 percent drop of capital in the U.S. financial market is expected to bring a 0.4 percent rise in share prices of advanced markets, while pulling up the stock prices of emerging economies by 1.5 percent," Park said, calling it a "bubble."

    Park warned that in such cases a recovery in advanced markets or a hike in interest rates may cause a massive capital withdrawal from emerging economies, devastating their financial markets.

    Moreover, a possible surge in raw material prices, together with the decreasing power of a U.S. dollar, may hurdle emerging economies from making a full-swing recovery, he said.

    "Also, a decreasing U.S. dollar may pressure the U.S. government to raise the key interest rate, which will deteriorate demand in the U.S. market and trade conditions for emerging countries," Park explained.

    The U.S. dollar has stayed on a decreasing move against major currencies, such as the Euro and the Japanese Yen, since last March.

    "Even with the current tumble, the U.S. dollar is still expected to stay as the world's key currency," Park said.

    Park urged a global collaboration, such as a G-29 meeting, in order to prevent a possible dispute over foreign exchange rates.

Special Report:  Global Financial Crisis