Korea Won Falls From 1-Month High on Importer Bills; Bonds Gain

By Kim Kyoungwha

March 18 (Bloomberg) -- South Korea’s won, the world’s best performer this month, weakened for the first time in four days on speculation importers are taking advantage of its recent gains to settle bills. Bonds rose.

The currency dropped from a one-month high against the dollar as the benchmark Kospi index of local shares halted a rally after climbing 3.4 percent yesterday, the biggest gain in almost seven weeks. The won has strengthened about 8 percent since the end of February as signs of an improvement in the U.S. financial industry drove a rebound in global shares.

“The won’s recent strength is spurring a bout of importers’ settlements,” said Lee Young Chul, a currency dealer with Korea Exchange Bank in Seoul. “With local stocks showing signs of faltering, demand for the currency also weakened.”

The won fell 0.8 percent to 1,420.05 per dollar as of 11:07 a.m. in Seoul, according to Seoul Money Brokerage Services Ltd. It earlier reached 1,389.90, the highest since Feb. 12.

Demand for the won rose earlier after Finance Minister Yoon Jeung Hyun said the government will continue to discuss an extra budget with the ruling party for a “satisfactory” package to help create jobs.

The government is pumping 51 trillion won ($36 billion) into the economy, including tax cuts and infrastructure spending. Yoon said today the government will submit the extra spending package to the parliament by the end of this month.

The government plans to cut issuance of currency- stabilization bonds and will use 5 trillion won from the stabilization fund to pay for the extra budget, Seoul Economic Daily reported, citing officials it didn’t identify.

The government and ruling party are working on an extra budget of between 27 trillion won and 29 trillion won, Lim Tae Hee, the policy chief of the Grand National Party told reporters yesterday, the report said.

Bonds Advance

Government bonds rose on speculation debt sales to finance economic stimulus plans will be smaller than the market expected. The government may issue 17 trillion won to 19 trillion won of bonds to fund additional spending, Yonhap news agency reported, citing GNP’s Lim. Traders had estimated 24 trillion won in issuances.

“Concerns about an oversupply of debt are easing as the size of new debt sales may not be overwhelming,” said Kong Dong Rak, a fixed-income analyst with Hana Daetoo Securities Co. in Seoul.

The yield on the benchmark bond due March 2014 fell two basis points, or 0.02 percentage point, to 4.34 percent, according to Korea Exchange.

To contact the reporters on this story: Kim Kyoungwha in Beijing at kkim19@bloomberg.net; Patricia Lui at plui4@bloomberg.net