South Korean Won Gains Most in Week as Stocks Rally; Bonds Fall

By Kim Kyoungwha

Dec. 8 (Bloomberg) -- South Korea’s won rose the most in a week on speculation that foreign investors may increase purchases of shares after the Kospi index rallied. Bonds fell.

The currency is the best performer today in Asia outside Japan, after ruling and opposition parties agreed to reduce income and corporate taxes to spur economic growth. The economy grew 0.5 percent last quarter, the weakest pace since 2004.

“Demand for dollars became less intense after selling pressure from foreign investors eased and import settlements are also dwindling,” said Kim Sung Soon, a currency dealer with state-run Industrial Bank of Korea in Seoul. “The atmosphere is turning a bit favorable for the won.”

The won rose 0.8 percent to 1,464.75 per dollar as of 10:23 a.m. in Seoul, according to Seoul Money Brokerage Services Ltd. The currency shed 36 percent this year. The Kospi index rose 2.4 percent, extending gains into a second day

Income taxes will be lowered by a total of 2 percentage points gradually from next year through 2010, the Ministry of Strategy and Finance said in an e-mailed statement on Dec. 5.

Corporate tax on companies that earn net income of less than 200 million won ($135,208) will be reduced to 10 percent by 2010 from the current 13 percent, according to the government’s proposal announced on Sept. 1. The tax on larger companies with net income exceeding 200 million won will be cut to 20 percent by 2010 from 25 percent now, the proposal showed.

Bonds Decline

Bonds fell on speculation investors are reluctant to take positions ahead of the government’s auction to sell five-year debt. The finance ministry is to sell 1.4 trillion won via a weekly auction later in the morning.

The five-year yield declined to the lowest level since 2005 last week on speculation the central bank will cut interest rates again on Dec. 11 after lowering its benchmark three times in a month to spur the economy. The benchmark interest rate stood at 4 percent, the lowest since 2006.

The yield on the benchmark bond due September 2013 rose one basis point to 4.44 percent, according to the Korea Exchange. The price fell 0.03, or 3 won per 10,000 won face amount, to 106.96. A basis point is 0.01 percentage point.

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