Korea Won Extends Drop From 11-Week High; Government Bonds Fall

By Kim Kyoungwha

March 30 (Bloomberg) -- South Korea’s won weakened by the most in more than two months, extending its slide from an 11-week high, on speculation importers and banks are taking advantage of this month’s advance to pay bills. Bonds fell.

The currency has strengthened 10 percent since the end of February, the best performance among Asia’s 10 most-traded currencies, on bets a widening trade surplus will supply the dollars needed to meet payments on overseas debt. The central bank today reported that South Korea’s current-account balance returned to surplus last month as imports slumped.

“Many market participants view the won’s recent gains as too rapid, which is spurring a bout of sales,” said Lee Young Chul, a currency dealer with Korea Exchange Bank in Seoul. “The decline may be checked by exporters’ deals and foreign investment in stocks.”

The won fell 3.1 percent to 1,391.50 per dollar as of 3 p.m. in Seoul, according to Seoul Money Brokerage Services Ltd. It reached 1,307.50 on March 27, the highest since Jan. 8. The won shed 9.6 percent this year.

The Kospi stock index slumped 3.2 percent, following three weeks of gains, as global investors sold more Korean shares than they bought for the first time in 10 days, according to Korea Exchange.

The current-account balance showed a surplus of $3.68 billion for last month, following a $1.64 billion deficit in January, the Bank of Korea said in Seoul. The indicator, which tracks the flow of goods, services and investment income, may show a $5 billion surplus this month, it said.

‘Fair Value’

This month’s advance in Asian currencies will soon end as “elevated” risk aversion deters investment in regional assets, according to Calyon.

“The Asian FX rally is close to being over,” Mitul Kotecha, head of global foreign-exchange strategy at Calyon in Hong Kong, wrote in a research note to clients today. “Unless there is a further improvement in risk appetite it is difficult to see most Asian currencies strengthening much further.”

Based on the Calyon Risk Aversion Barometer, the won’s recent gains have brought the currency back to a “fair value” level, which suggests little scope for further appreciation, Kotecha said. There is “only scope for some slight appreciation in the Indonesian rupiah, Indian rupee and Singapore dollar over the short term,” he wrote.

Bonds fell on concern increased government sales to finance an economic stimulus package will discourage investors from buying fixed-income securities. The yield on the benchmark bond due March 2014 rose nine basis points, or 0.09 percentage point, to 4.68 percent, and the three-year yield added 15 basis points to 3.80 percent, according to Korea Financial Investment Association.

The government will sell a record 81.6 trillion won ($59 billion) of bonds in 2009, up 57 percent from 2008, the finance ministry said last week.

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