Korean Won Rises Most Since 1998 as Stocks Rebound; Bonds Fall

By Kim Kyoungwha

Oct. 13 (Bloomberg) -- South Korea's won rose the most since March 1998 against the dollar as local stocks rallied on speculation efforts by global leaders to restore confidence in banks will stabilize financial markets. Bonds fell.

The Korean currency climbed to the highest in a week, rising for a third day as President Lee Myung Bak said today that the nation isn't facing a financial crisis such as the one that hit in 1997. The Kospi stock index jumped as much as 4.3 percent, after sinking to a three-year low on Oct. 10.

``The won's advance will continue should Asian stock markets sustain gains,'' said Ko Yun Jin, a currency dealer with Kookmin Bank in Seoul. ``There's some room for exporters to sell more dollars.''

The won rose 5.7 percent to 1,238 against the dollar as of 3 p.m. in Seoul, according to Seoul Money Brokerage Services Ltd. It earlier climbed as much as 6.6 percent to 1,227. The won has lost 25 percent this year, the biggest loss among Asia's 10 most-active currencies outside of Japan, and the Kospi has fallen 33 percent.

South Korea's foreign-exchange reserves dropped in each of the last six months, sliding $24.6 billion to $239.7 billion as policy makers intervened to stem the won's slide. Central banks buy or sell overseas currencies to influence exchange rates.

South Korea has been building up its currency reserves since the Asian financial crisis led to the won halving in value in 1997 and sent the nation to the brink of default. The government secured a $57 billion loan from the International Monetary Fund at the time to help repay overseas debt.

``Our foreign-exchange reserves are 27 times more than in 1997,'' President Lee said on KBS1 radio in Seoul. ``It's the government's top priority to create and protect jobs.''


Shares Gained

South Korea's economy will face difficult times until next year, he said. The current-account, which showed a record deficit of $4.71 billion in August, should return to a surplus this quarter, Lee forecast.

Share markets rose in most Asia-Pacific markets today after European leaders agreed to guarantee new bank debt and use government money to prevent lenders from collapsing. MSCI's Asia Pacific excluding Japan Index climbed 2.5 percent today, after last week tumbling 20 percent, the worst performance since the index was compiled in 1987. Japan is shut today for a holiday.

South Korea is considering selling dollars to asset managers to reduce volatility in the currency market, Edaily reported, citing an unidentified finance ministry official. Investment trusts operating overseas funds have influenced foreign exchange markets because they previously hedged too much against a strong won, the Korean-language on-line news agency report said.

Bonds Fell

Korea's government bonds fell as a finance ministry bond auction drew fewer bids because of a shortage of cash at banks and brokerages, according to Seo Chul Soo, a fixed-income strategist with Daewoo Securities Co. in Seoul.

The ministry sold 1.65 trillion won ($1.3 billion) of five- year government debt at an average yield of 5.33 percent, according to the ministry's Web site. Investors submitted total bids for 1.88 trillion won, or 1.1 times the amount of debt on offer, lower than 1.4 times at a previous auction on Sept. 8.

The yield on the 5.5 percent note due June 2011 rose 4 basis points to 5.27 percent, according to Korea Dealers Securities Association. The price stood at 102.48. A basis point is 0.01 percentage point.

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