Korean Won Rises From Lowest in Month on Stock Gain; Bonds Fall

By Kim Kyoungwha

Jan. 16 (Bloomberg) -- South Korea’s won rose, rebounding from a one-month low, as local stocks rallied on the prospect government aid will shore up Bank of America Corp. Bonds fell.

The currency, Asia’s worst performer last year, still posted its fourth weekly loss on concern a deepening global recession will hurt demand for Korean exports and that further U.S. bank failures will prompt hoarding of dollars. South Korea’s department-store sales fell by the most in almost two years in December, government data showed.

“Currency moves are getting initial support from gains in the stock markets,” said Kim Jae Eun, an economist with Hana Daetoo Securities Co. in Seoul. Still, she added, “doubts and fears on whether policy measures will work to shore up the economy are growing, shaking investment confidence.”

The won rose 2.5 percent to 1,358 per dollar as of 3 p.m. in Seoul, according to Seoul Money Brokerage Services Ltd. The currency lost 1.1 percent on the week. The Kospi index climbed 2.2 percent today after a 6 percent drop yesterday.

Sales at the nation’s three-biggest department stores, including Lotte Shopping Co., declined 4.5 percent from a year earlier, after gaining 7.5 percent in November, the Ministry of Knowledge Economy said in Gwacheon today. Sales at discount stores dropped 5.8 percent following November’s 2.3 percent rise.

Samsung Heavy

Demand for the won was also supported today after Samsung Heavy Industries Co., the world’s second-biggest shipbuilder, won an order worth 907.6 billion won ($661 million) to build a floating gas production and storage unit.

Stocks and the won also extended gains as Ssangyong Motor Co., which has sought bankruptcy protection, expects to resume production today after resolving a parts shortage that forced lines to close three days ago.

Local currency bonds fell. The yield on the benchmark bond due September 2013 rose four basis points to 4.19 percent, according to the Korea Securities Dealers Association. A basis point is 0.01 percentage point.

Bank of Korea Governor Lee Seong Tae said today his bank will seek ways to provide more liquidity in the nation’s financial system when necessary and reiterated monetary policy will focus on spurring economic growth.

Investors should take positions in South Korea’s swap market that profit from a “deep and prolonged recession,” according to DBS Group Holdings Ltd.

DBS recommends receiving the three-year rate, at 3.18 percent today in Seoul, and paying the one-year rate of 2.81 percent because the so-called swap curve is too steep given the outlook for monetary policy, Jens Lauschke, a fixed-income strategist in Singapore with Southeast Asia’s biggest bank, wrote in a research note.

Goldman Sachs Group Inc., Nomura International Ltd. and UBS AG all forecast the Korean economy will contract this year, its first recession since the 1997-1998 Asian financial crisis. The Bank of Korea forecast last month that the economy will expand 2 percent this year, the slowest in 11 years.

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