Bloomberg News

Korean Won Climbs to 2008 High on Fund Share Buying; Bonds Drop

July 22, 2011

July 22 (Bloomberg) -- South Korea’s won climbed to its strongest level in almost three years after European leaders agreed on a package to contain the region’s debt crisis, reigniting interest in emerging-market assets. Bonds fell.

European officials announced 159 billion euros ($229 billion) of new aid for Greece late yesterday and empowered their 440 billion euro rescue fund to buy debt across stressed euro nations. Overseas funds bought more Korean shares than they sold for the first time in nine days, purchasing a net $152 million today, according to data from Korea Exchange.

“We got quite encouraging news from embattled Europe,” said Kim Jinju, a Seoul-based currency dealer with Korea Exchange Bank. “There is some caution among traders ahead of the psychologically important 1,050 level but the strong momentum will likely continue.”

The won strengthened 0.3 percent to 1,051.98 per dollar as of the 3 p.m. close in Seoul, taking this week’s gain to 0.6 percent, according to data compiled by Bloomberg. It touched 1,050.50 earlier, the strongest level since August 2008.

Accelerating inflation has reduced demand for government bonds. Consumer prices rose 4.4 percent in June from a year earlier, compared with 4.1 percent in May, according to data from Statistics Korea released July 1. Inflation has exceeded the official 4 percent target every month this year.

President Lee Myung Bak ordered the creation of a task force to monitor prices this week and the government will announce measures to ease price gains early next week, his office said in a statement on July 20.

The yield on South Korea’s 4 percent bonds due March 2016 rose eight basis points this week to 4 percent, according to prices from Korea Exchange Inc. The rate rose five basis points, or 0.05 percentage point, today.

--Editor: Sandy Hendry, Andrew Janes

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

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


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