The Korean won plunged to the lowest level in five years against the U.S. dollar on Monday as demand for safer assets grew amid lingering uncertainties about China and a much-awaited rate hike in the U.S.

The local currency dipped below the psychologically significant 1,200-won level to close at 1,203.7 to the greenback, down 10.3 won from the previous close, falling for a fourth straight session.

Monday's closing price marks the lowest level since 1,204 on July 22, 2010.  

The won has been under selling pressure amid escalating concerns over China's economic slowdown as well as uncertainties over the timing of the first U.S. rate hike in nearly a decade.

"The won is likely to stay rangebound in the 1,200-won level for the time being while the won-yen arbitrage rate is expected to trade in the 1,000 won level," HI Investment & Securities Co. economist Park Sang-hyun said in a note.

Park said anticipation for a U.S. rate hike is forecast to bolster appetite for safe-haven assets, putting downward pressure on emerging currencies such as the won. Jitters over the Chinese economy will also help send the won lower, he added.

Some economists also noted that a one-off factor prompted Monday's sharp slide.

"On the domestic front, views that Tesco PLC's sale of its local unit will lead to a demand for the greenback also played a role," said Jung Kyung-parl of KEB Futures Co.

The British retailer signed a 7.2 trillion won ($6 billion) deal with a consortium led by MBK Partners to sell its local unit, Homeplus. It marked the country's largest takeover deal.

A weakening won usually bodes well for the country's export-reliant economy by improving the price competitiveness of local exporters, who have recently been suffering from a slump in shipments.

But the recent sharp drop has fanned concerns that it may not be the case as the country's biggest trade partners, such as China, are struggling to prop up their economy.

Watchers also expressed concerns that a continuous decline in the won may prompt foreign investors to leave the local financial market.

Foreigners have been unloading their stock holdings for the 23rd consecutive session as of Monday, the longest slide since a 33-session losing streak that started in June 2008. (Yonhap)