Korea's Won Weakens a Fifth Day on Dollar Index; Bonds Decline

By Kim Kyoungwha and Judy Chen

Aug. 13 (Bloomberg) -- South Korea's won weakened for a fifth day on speculation investors will sell the currency for dollars as falling commodity prices support the outlook for U.S. economic growth. Bonds fell.

The won dropped 3.2 percent against the dollar over the past month, prompting Choi Jong Ku, director general of the finance ministry's international bureau, to say yesterday that one-sided moves in the currency are ``not desirable.'' The Dollar Index traded on ICE Futures in New York, which tracks the currency versus six major trading partners, was little changed, snapping eight days of gains, the longest stretch since March 2005.

``The global dollar trend is behind the won's weakness,'' said Sam Hong, a currency dealer with Shinhan Bank in Seoul. ``The dollar's uptrend will be maintained should the Korean government stay out of the market.''

Korea's currency fell 0.3 percent to 1,037.40 against the dollar as of 10:26 a.m. in Seoul, according to Seoul Money Brokerage Services Ltd. Central banks intervene in the currency market by arranging sales or purchases of foreign exchange.

``Our principle is to take measures in case of any volatility in the market,'' the ministry's Choi said. ``We won't sit idle on the threat of inflation.''

Consumer prices rose to a decade high of 5.9 percent in July, the government said this month.

Korea's Kospi index of stocks declined for a second day even as overseas investors added to yesterday's share purchases.

Bonds Decline

Government bonds fell for a third day on concern that a decline in the local currency will push up the cost of imports and accelerate inflation.

Central bank Governor Lee Seong Tae and his colleagues last week unexpectedly raised the nation's benchmark interest rate, saying rising prices posed a greater threat than slowing economic growth.

The seven-day repurchase rate was increased by a quarter- percentage point to an eight-year high of 5.25 percent. The bank next meets on Sept. 11.

``Traders aren't willing to take positions as the won market is moving unfavorably for bond investment,'' said Seo Chul Soo, a fixed-income strategist with Daewoo Securities Co. in Seoul. ``The risk of higher rates is lingering.''

The yield on the 5.25 percent note due March 2013 rose 3 basis points to 5.82 percent, according to Korea Securities Dealers Association. A basis point is 0.01 percentage point.

To contact the reporters on this story: Kim Kyoungwha in Beijing at kkim19@bloomberg.net; Judy Chen in Shanghai at xchen45@bloomberg.net;