Korean Won Falls as Stocks Slump on Export Outlook; Bonds Gain

By Kim Kyoungwha

Nov. 6 (Bloomberg) -- South Korea's won fell as the nation's stocks dropped for the first time in six days on concern global economic growth will hurt exports and corporate profits. Government bonds gained.

A measure of volatility in the currency rose as overseas investors sold more Korean shares than they bought today after yesterday purchasing the most in three days. The won is down 29 percent this year, the worst performer of the 10 most-active currencies in Asia outside Japan.

``The volatility in the currency market will remain high until the end of this year,'' said Kwon Goohoon, an economist at Goldman Sachs Group Inc. in Seoul. ``There are many uncertainties and concerns about corporate earnings and economic performances and markets will be number-sensitive.''

Korea's currency fell 3.6 percent to 1,313.25 per dollar as of 10:05 a.m. local time, according to Seoul Money Brokerage Services Ltd. It fell as low as 1,325.05 today, the weakest level this month. The Kospi stock index dropped 5.4 percent.

Implied volatility for one-month dollar-won options rose to 60 percent, from 49 percent yesterday, according to data compiled by Bloomberg. Dealers quote implied volatility, a measure of expectations for future currency swings, as part of pricing options.

In an effort to keep the economy from sliding, the government this week announced a 14 trillion won ($10.7 billion) package of extra spending and tax breaks for 2009.

Growth was the weakest in four years in the third quarter as exports fell and household consumption stagnated.

Bonds Advance

Korea's local-currency bonds rose for a second day as the slide in stocks and concern economic growth will slow spurred demand for the relative safety of government debt.

``There's a sustained bid for flight to quality as investors snapped up government debt amid concerns over the economy,'' said Kim Taek Hoi, a fixed-income fund manager at Hana Bank in Seoul. ``This trend will continue.''

The yield on the 5.5 percent note due June 2011 fell 8 basis points or 0.08 percentage point, to 4.56 percent, according to Korea Exchange Inc. The price rose 0.21, or 21 won per 10,000 won face amount, to 104.52.

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