South Korean Won Gains as Authorities May Intervene; Bonds Rise

By Kim Kyoungwha

June 26 (Bloomberg) -- South Korea's won rose on speculation the nation's foreign-exchange authorities will buy the currency to temper inflation at the fastest in seven years. Government bonds gained.

The won pared its fourth straight monthly decline after Choi Jong Ku, head of the finance ministry's international finance bureau, said this week the government will take ``continuous'' steps to stabilize the won. The local currency gained the most in three months on June 17 after Choi said that day the nation's authorities will take ``solid'' measures to temper inflation.

``The mood is cautious that the authorities may step in to curb the won's loss as the dollar nears the pre-intervention level of 1,040,'' said Kim Hee, a currency dealer at state-run Korea Development Bank in Seoul. Still, ``the upward pressure for the dollar remains as importers buy dollars to pay bills.''

The won climbed 0.4 percent to 1,034.10 per dollar as of 10:55 a.m. local time, according to Seoul Money Brokerage Services Ltd. The currency has fallen 4.2 percent this quarter taking its loss this year to 9.5 percent, the second worst performer of the 10 most-active currencies in Asia outside Japan.

The won also gained as overseas investors bought more local shares than they sold, ending 13 days of net sales. Fund managers outside the nation bought a net 29 billion won ($28 million) of shares today, according to Korea Exchange.

Central banks intervene in currency markets by buying or selling foreign exchange. A stronger currency helps limit inflation by reducing the cost of imports.

Five-year government bonds rose for a second day on optimism yields near the highest since January will lure buyers.

The yield on the 5.25 percent note due March 2013 fell 4 basis points to 5.87 percent, according to Korea Exchange. The price rose 0.18, or 18 won per 10,000 won face amount, to 99.02. A basis point is 0.01 percentage point.

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