Korean Won Falls the Most in Almost Three Months; Bonds Decline

By Judy Chen

Aug. 25 (Bloomberg) -- South Korea's won fell the most in almost three months to reach the lowest since November 2004 as overseas investors stepped up sales of the nation's shares. Bonds declined.

The won extended its loss this year to 13 percent, the worst performance among the world's 16 most-traded currencies. UBS AG pared its mid-2009 forecast for the benchmark Kospi index on Aug. 21 by 15 percent to 1,700 as the global economy cooled and consumer prices jumped.

``The Kospi is not good and foreign investors are selling shares,'' said Lee Yoon Jin, a currency dealer at state-run Korea Development Bank in Seoul. ``That's the main reason for the won's weakness.''

Korea's currency dropped 1.5 percent, the most since May 8, to 1,078.9 per dollar as of 3 p.m. in Seoul, according to Seoul Money Brokerage Services Ltd. It touched 1,079.9. Global fund managers have sold 1.33 trillion won ($1.23 billion) more local shares than they bought since Aug. 18, stock exchange data shows.

Korea's consumer-price inflation may exceed 7 percent in August, the Seoul Economic Daily reported today, citing a government official it didn't identify. Consumer prices climbed 5.9 percent in July from a year earlier, the fastest pace in almost 10 years.

Government bonds declined on concern that inflation will accelerate in August. The Bank of Korea raised the benchmark interest rate to an eight-year high of 5.25 percent this month.

``The bond yield is likely to remain high this week as investors are concerned about the weaker currency and inflation,'' said Shin Dong Jun, a fixed-income analyst at Hyundai Securities Co. in Seoul.

The yield on the 5.5 percent note due September 2017 climbed 12.5 basis points to 6.08 percent, according to Korea Exchange. The price dropped 0.83, or 83 won per 10,000 won face amount, to 98.53. A basis point is 0.01 percentage point.

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