Korean Won Gains Most in 2 Months on Foreigner Share Purchases

By Kim Kyoungwha

March 10 (Bloomberg) -- South Korea’s won rose for a third day versus the dollar, extending its rebound from an 11-year low, as overseas investors bought more local shares than they sold.

The advance, the biggest in almost two months, was also supported by speculation policy makers sold dollars to bolster the currency, Asia’s worst performer this year. The Kospi stock index gained 1.9 percent, climbing in tandem with equity benchmarks across most of the region’s emerging markets.

“There are offshore players who are selling dollars for the won after an excessive overshoot in the exchange rate in recent weeks,” said Roh Sang Chil, a currency dealer with Kookmin Bank in Seoul. “Rising stocks are lending support to the currency market. From April, we’ll see the overall situation improving.”

The won rose 2.5 percent to 1,511.50 per dollar as of 3 p.m. in Seoul, according to Seoul Money Brokerage Services Ltd. The currency has dropped 17 percent so far this year and touched 1,597 on March 6, the lowest since 1998.

The Bank of Korea said today the bank’s foreign-exchange reserves are liquid and cashable whenever needed, rebuffing speculation that they can’t be mobilized immediately. The bank said it skipped a weekly auction to supply dollars to local lenders, a sign a shortage of the U.S. currency may be easing.

South Korean banks had $92.6 billion of foreign debt as of Jan. 31, including $38.3 billion maturing by the end of this year, according to data provided on Feb. 27 by the Bank of Korea. The foreign debt included loans, bonds and other securities, the central bank said.

Dividend Season

The won may come under renewed pressure this month as banks pay foreign debt and overseas shareholders repatriate dividend payments from Korean companies, said Lim Ji Won, a currency dealer with JPMorgan Chase & Co. in Seoul. South Korea’s economy may shrink 4.5 percent this year, Goldman Sachs Group Inc. said today, revising an earlier forecast for a 1 percent contraction.

“Without the government’s action, the won still remains vulnerable,” Lim said. “In addition, March is a typical month in which the market sees seasonally high demand for dollars linked to dividend payments.”

The yield on benchmark three-year government bonds fell 2 basis points, or 0.02 percentage points, to 3.64 percent, while the five-year bond yield rose 2 basis points to 4.63 percent, according to Korea Financial Investment Association.

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