Bloomberg News

Korea Won Gains, Bonds Drop as U.S. Data Eases Growth Concern

June 17, 2011

June 17 (Bloomberg) -- South Korea’s won advanced the most in more than two weeks and government bonds dropped as a decline in U.S. jobless claims damped speculation that the global economic recovery is stalling.

Americans filing for unemployment benefits totaled 414,000 last week, less than the median estimate of 420,000 in a Bloomberg survey of economists, while housing starts increased more than forecast in May, government data show. The International Monetary Fund said it is ready to continue supporting Greece if the economic measures agreed upon as part of a bailout package with the European Union are adopted.

“Speculation that Greece may get some support eased investor concerns somewhat, boosting demand for riskier assets,” said Byeon Ji Young, a currency analyst at Woori Futures Co. in Seoul. “The drop in the U.S. jobless claims, which tempered concern about the economy, is helping boost stock markets as well as the currency.”

The won strengthened 0.4 percent to 1,085.90 per dollar as of the 3 p.m. close in Seoul, the biggest gain since June 1, according to data compiled by Bloomberg. It touched 1,091.53 yesterday, the weakest level since May 26 and dropped 0.3 percent over the week.

Five-year bonds fell. The yield on South Korea’s 4 percent notes due March 2016 rose eight basis points, or 0.08 percentage point, to 3.96 percent, according to prices from Korea Exchange Inc. The yield advanced one basis point for the week.

Possible Rate Pause

The Bank of Korea may need to slow the pace of interest- rate increases after its fifth move since July 2010 last week because of rising risks to the global economic outlook, Kang Myung Hun, a central bank board member, said.

“The external conditions are much more uncertain -- if the uncertainty deepens, we may have to slow down our pace,” Kang, one of six policy makers who vote on rates, said in an interview yesterday. Kang also cited the danger of boosting rates so quickly that the bank detonates a household-debt “bomb” that causes a property-market crash.

South Korea needs to continue raising interest rates to combat inflation while exchange-rate flexibility is also needed to respond to inflation, the International Monetary Fund said today in a statement distributed by South Korea’s finance ministry.

--Editor: Sandy Hendry, Andrew Janes

To contact the reporter on this story: Seyoon Kim in Seoul at skim7@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net


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