Korean Won Gains 1st Time in 3 Days on Intervention; Bonds Rise

By Judy Chen and William Sim

Jan. 21 (Bloomberg) -- South Korea’s won rose for the first time in three days on speculation the Bank of Korea sold dollars to shore up the local currency. Bonds advanced.

The won earlier fell toward a one-month low on concern the country is headed for a prolonged recession. The state-run Korea Development Institute today cut its 2009 growth forecast for the economy to 0.7 percent, from a November estimate of 3.3 percent, and said it expects a 2.6 percent contraction in the first half.

“The Bank of Korea managed the won today,” said Kim Yule, a currency dealer with BNP Paribas in Seoul. “It probably came out when the won traded at around 1,380.”

The won climbed 0.1 percent to 1,373 per dollar as of the 3 p.m. close of trading in Seoul, after earlier sliding as low as 1,386.65, according to Seoul Money Brokerage Services Ltd. It reached 1,393.50 on Jan. 15, the weakest since Dec. 18.

Governments and central banks intervene in currency markets by arranging purchases or sales of foreign exchange.

South Korea’s foreign-exchange reserves fell $63.7 billion in the eight months through November as policy makers tried to strengthen the local currency, which plunged 33 percent in that time. The won has dropped 8.3 percent this month, after surging 17 percent in December.

Bonds Rise

Government bonds rose on speculation the worsening economy prompted investors to seek the relative safety of debt.

Gross domestic product declined 0.3 percent in the fourth quarter from a year earlier, after expanding 3.8 percent in the previous three months, according to the median estimate of 13 economists surveyed by Bloomberg News before a report due at 8 a.m. in Seoul tomorrow.

“Investors seem more concerned about the economy before the announcement of fourth-quarter GDP,” said Lee Dong Kyu, a fund manager at Hana Bank in Seoul.

The yield on the 5.75 percent note due September 2018 dropped three basis points to 4.51 percent, according to Korea Exchange. The price rose 0.26, or 26 won per 10,000 won face amount, to 111.72. A basis point is 0.01 percentage point.

To contact the reporters on this story: Judy Chen in Shanghai at xchen45@bloomberg.net; William Sim in Seoul at wsim2@bloomberg.net