Korea's Won Declines for Second Day as Global Funds Dump Shares

By Kim Kyoungwha

July 15 (Bloomberg) -- South Korea's won fell for a second day as oil prices above $140 a barrel increased importers' bills and global funds offloaded the nation's equities, fanning demand for the dollar.

Traders may test the government's resolve to strengthen the currency and curb inflation as an advance in the dollar near 1,010 is likely to invite the authorities to intervene, said Kim Sung Soon, a dealer with Industrial Bank of Korea.

``The external conditions are still for a rise in the dollar,'' Seoul-based Kim said. ``The caution against intervention is likely to keep players on their toes this week despite demand for the dollar.''

South Korea's currency fell 0.2 percent to 1,006.20 against the dollar at 9:20 a.m. in Seoul, compared with 1,004.60 yesterday, according to Seoul Money Brokerage Services Ltd. The won slumped 7.4 percent this year.

Investors abroad sold more Korean shares than they bought every day except two since June, according to Korea Exchange. Vice Finance Minister Kim Dong Soo said today consumer prices may become more unstable in the second half.

To help spur inflows of foreign exchange, South Korea will ease controls on non-deliverable forward deals made by domestic banks this month, Sohn Byung Doo, an official at the finance ministry's international bureau, said yesterday.

The decision is expected to ``boost inflows of foreign funds,'' Sohn said. ``It is also in response to mounting calls from banks to remove controls.''

A ceiling imposed in 2004 on banks that built up dollar positions in non-deliverable forward deals with overseas investors will be scrapped this month, Sohn said in a telephone interview. The curbs have limited the ability of South Korean banks to take long NDF positions, a trade that investors use to benefit from a rising currency.

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