Korean Won Falls to 3-Week Low on Economic Concerns; Bonds Gain

By Kim Kyoungwha

Nov. 17 (Bloomberg) -- South Korea's won fell to the lowest in almost three weeks after a government report indicated consumer spending is weakening, fanning concern that growth will slow in Asia's fourth-largest economy. Bonds rose.

The currency and the Kospi stock index both dropped for a fifth day as overseas investors sold more Korean shares than they bought. The International Monetary Fund may cut its 2009 economic growth forecast for the nation to less than 3 percent from 3.5 percent, Yonhap News reported today, citing President Lee Myung Bak.

``The won will find it difficult to stage a meaningful turnaround given that the economy is cooling fast,'' said Chun Chong Woo, an economist at Standard Chartered First Bank Korea Ltd. in Seoul. ``Risk aversion is still prevalent, damping demand for emerging-market assets.''

The won fell 0.7 percent to 1,409 per dollar at the 3 p.m. close in Seoul, according to Seoul Money Brokerage Services Ltd. The currency dropped 34 percent so far this year, the biggest loss among the 10 most-traded Asian currencies outside of Japan.

Sales at the country's three biggest discount chains declined 0.7 percent from a year earlier last month, after tumbling 9.2 percent in September, the Ministry of Knowledge Economy said in Gwacheon today. Department store sales were unchanged, following a 0.3 percent drop.

Bonds Decline

Bonds advanced on speculation yields near the highest since Oct. 8 attracted investors to government debt along with deepening concern that the economy may shrink.

The benchmark three-year yield jumped 67 basis points, or 0.67 percentage point, last week on concern that the government will step up bond sales to fund its economic stimulus plan and after the finance ministry said it would set up a stabilization fund intended to buy corporate and bank debt.

``There's a perception that last week's surge in yields was overdone,'' said Kong Dong Rak, a fixed-income strategist with Hana Daetwo Securities Co. in Seoul. ``With no strong incentives, the market is having a mild recovery.''

The yield on the benchmark 5.5 percent bond due June 2011 fell to 5.36 percent, from 5.40 percent at the end of last week, according to Korea Securities Dealers Association.

The government sold a less-than-planned 311 billion won ($220 million) of 10-year bonds at an average yield of 6.02 percent, the Ministry of Strategy and Finance said. Investors submitted total bids of 361 billion won, or 72 percent of the 500 billion won of debt offered, the ministry said.

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