South Korean Won Advances on Speculation Government Is Buying

By Judy Chen

July 8 (Bloomberg) -- South Korea's won climbed to a two- week high on speculation the government is intervening to strengthen the currency after inflation accelerated to a decade- high.

The won notched up its biggest two-day gain in more than three months after President Lee Myung Bak yesterday sacked Vice Finance Minister Choi Joong Kyung, in charge of currency policy, after its 9.6 percent slide this year. The Ministry of Finance and Bank of Korea said they will use the country's $258 billion foreign-exchange reserves to support the won.

``It seems that there was an intervention this morning,'' said Jung Chan Ho, a currency dealer in Seoul at Shinhan Bank, a unit of South Korea's second-biggest financial group. ``The intervention could be $1 billion or more.''

Korea's currency advanced 1.1 percent to 1,032.1 against the dollar as of 10:47 a.m. in Seoul, from 1,043 yesterday, according to Seoul Money Brokerage Services Ltd. The won has gained 1.8 percent in the past two days, the most since March 24-25, according to data compiled by Bloomberg.

The government, which previously advocated a weaker won, has changed its stance as record oil prices push up import costs and widen the current-account deficit.

Lee said on July 6 he may lower his economic growth target for the next two years in an interview with the British Broadcasting Corporation in Seoul, according to a transcript posted on the Web site of presidential office yesterday.

Central banks intervene in currency markets by buying or selling foreign exchange. The financial authorities bought about $7 billion of won since the end of May to help boost the currency, JoongAng Ilbo newspaper reported July 1.

To contact the reporters on this story: Judy Chen in Shanghai at xchen45@bloomberg.net.