South Korean Won Gains on Intervention Speculation; Bonds Rise

By Kim Kyoungwha and Judy Chen

Nov. 26 (Bloomberg) -- South Korea’s won rose the most in three weeks on speculation the authorities will purchase the currency after it touched the lowest level in a decade. Government bonds advanced.

The currency also gained for a second day after the Kospi stock index jumped 4.7 percent and overseas funds bought more local shares than they sold for the first time in three days, according to Korea Exchange Inc. Local shares rallied after the U.S. Federal Reserve yesterday announced new measures to boost consumer spending in the world’s biggest economy.

“Caution against intervention is keeping traders on their toes,” said Jo Hyun Suk, a currency dealer at Korea Exchange Bank in Seoul. “Buying sentiment for the dollar is still alive and until confidence is fully recovered, the greenback remains in investors’ favor.”

The won rose 1.6 percent to 1,478.10 versus the dollar at the 3 p.m. close of local trading, according to Seoul Money Brokerage Services Ltd. The currency has slumped 29 percent since the end of June, the biggest decline of the 10 most-traded Asian currencies outside Japan. It touched 1,524.50 on Nov. 21, the lowest level since March 1998.

Gains in the won were tempered after a central-bank report showed sentiment among Korean manufacturers sank to the weakest level in more than 10 years. The index measuring expectations for December fell to 52 from 65 the prior month, according to a survey released by the Bank of Korea in Seoul. A reading below 100 means pessimists outnumber optimists.

Bonds Advance

Three-year government notes ended two days of losses as the prospect of an economic recession bolstered the case for further interest-rate cuts.

Korea’s economy will contract 2 percent next year as exports slump due to the global economic slowdown, Macquarie Securities Ltd. said. The company previously estimated Asia’s fourth-largest economy would expand 2.5 percent in 2009, following 3.6 percent growth this year. UBS AG said last week the Korean economy will shrink 3 percent in 2009.

“The global situation has deteriorated sharply while domestic dislocations have made it harder to find credible alternatives to support growth as exports collapse,” Bill Belchere, an economist at Macquarie in Hong Kong, wrote in a research note yesterday.

The yield on the 5.5 percent bond due June 2011 fell 12 basis points to 4.92 percent, according to Korea Exchange. The price rose 0.3, or 30 won per 10,000 face amount, to 103.92. A basis point is 0.01 percentage point.

Bank of Korea Governor Lee Seong Tae lowered the benchmark interest rate for the third time in four weeks on Nov. 7, cutting it to 4 percent. Lee has hinted he’s ready to act again to support the economy.

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