Korean Won Advances on Speculation Central Bank May Purchase It

By Kim Kyoungwha
June 24 (Bloomberg) -- South Korea's won rose on speculation the nation's foreign-exchange authorities will purchase the currency to help strengthen it and limit inflation caused by rising import prices. Bonds were little changed.

The won snapped a two-day loss as government officials have shifted their focus in recent months to curbing inflation that quickened to the fastest pace in seven years in May. Finance Minister Kang Man Soo said last week the government will ``put utmost priority on stabilizing prices and looking after the lives of the people.''

``It's hard for market players to take positions either way given that the dollar is trading near the 1,040 level where authorities last intervened to stem the won's loss,'' said Kim Hee, a currency dealer with state-run Korea Development Bank. ``Some export deals flew in, propping up the won as well.''

The won rose 0.2 percent to 1,037.20 against the dollar as of 10:16 a.m. local time, according to Seoul Money Brokerage Services Ltd. The currency has weakened 9.8 percent this year, the second worst performer of the 10 most-active currencies in Asia outside of Japan, according to data compiled by Bloomberg.

Central banks intervene in currency markets by arranging purchases or sales of foreign exchange.

Gains in the won may be tempered on concern a four-day decline in the benchmark Kospi stock index will spur overseas investors to cut their holdings of the nation's assets.

`Intervention Fears'

``A weak stock market and foreign sales of equities all point to demand for the dollar,'' said Ko Yun Jin, a currency dealer at Kookmin Bank in Seoul. ``Still, intervention fears will keep investors on their toes.''

South Korea's government bond yields stayed near the highest level since January on concern that rising inflation will erode the value of the fixed payments of debt.

``The inflation concern is unnerving debt investors,'' said Kim Do Sung, a futures trader with PB Futures Co. in Seoul. ``Trading is also very limited as few in the market are willing to take positions.''

The yield on the 5.25 note due March 2013 was little changed at 5.92 percent, according to Korea Exchange. The price held at about 98.76. A basis point is 0.01 percentage point.

To contact the reporters on this story: Kim Kyoungwha in Beijing at kkim19@bloomberg.net.