Korean Won Gains a 4th Day as Stocks May Lure Funds; Bonds Drop

By Kim Kyoungwha

Dec. 18 (Bloomberg) -- South Korea’s won strengthened for a fourth day on speculation a stock market rally will draw overseas investors. Bonds fell.

The currency, Asia’s worst performer this year, reached a six-week high as global funds bought 533 billion won ($411 million) more Korean shares than they sold this month. The Kospi stock index rose as much as 1.7 percent, set for its highest close since Oct. 21.

The won rose 2 percent to 1,299.15 per dollar as of 11:49 a.m. local time, according to Seoul Money Brokerage Services Ltd. It earlier touched 1,288.95, the strongest since Nov. 5. It still weakened 29 percent this year.

“The market is watching whether the key 1,300 level can be broken through as the won’s recent uptrend is supported by rallying stocks,” said Jay Won, a currency dealer with Korea Exchange Bank in Seoul. “Importers may emerge on the dollar’s dips, blocking any further advance in the won.”

South Korea should use interest-rate cuts and fiscal stimulus to cushion the economy from a global recession and avoid depleting its foreign-currency reserves to prop up the won, the Organization for Economic Cooperation and Development said yesterday.

“Intervention is likely to be costly and ineffective in the face of global financial turbulence that is driving the won’s depreciation and should therefore be limited to smoothing operations,” the OECD said yesterday. “This would also limit any further decline in foreign-exchange reserves, which provide a cushion against Korea’s short-term foreign debt.”

Bonds Decline

Bonds fell, snapping a five-day advance, as yields near the lowest since 2005 prompted some investors to sell.

The yield on five-year government bonds has slid 1.68 percentage points this quarter as the Bank of Korea delivered four interest-rate cuts, taking the seven-day repo rate to a record low of 3 percent to support the economy.

The yield on the benchmark bond due September 2013 climbed seven basis points to 4.19 percent, according to the Korea Exchange. The price fell, 0.30 or 30 won per 10,000 won face amount, to 108.18. A basis point is 0.01 percentage point.

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