Bloomberg News

Korea Won Drops to 14-Month Low on Europe Debt Woes; Bonds Jump

October 04, 2011

Oct. 4 (Bloomberg) -- South Korea’s won sank to the lowest level since July 2010 as concern Europe will fail to contain the region’s debt crisis prompted investors to seek refuge in the dollar. Bonds gained after inflation slowed more than forecast.

Greece passed austerity measures yesterday that will cut its 2012 budget deficit to 6.8 percent of gross domestic product, short of the 6.5 percent goal previously agreed to secure financial aid from the European Union, International Monetary Fund and European Central Bank. Euro-region finance chiefs will meet on Oct. 13 to decide whether the push is enough to win bailout funds needed to avoid default. The dollar strengthened against 14 of 16 major currencies today.

The won fell 1.3 percent from its Sept. 30 close to 1,194.20 per dollar in Seoul, following a 9.5 percent slide last month that was the biggest since February 2009, according to data compiled by Bloomberg. Local financial markets were closed yesterday for a holiday. The currency touched a 14-month low of 1,208.25 today, before paring its loss on suspected intervention and demand from exporters, said Lee Jung Ha, a currency trader with Korea Development Bank.

“Demand for dollars was strong, after Korean markets were closed for a holiday yesterday, on concern that Greece may default on its debt,” he said in Seoul. “There is speculation that the government intervened in the morning after the won weakened below 1,200. The currency trimmed losses in the afternoon as exporters sold dollars to convert income.”

Outflows, Inflation

The Kospi Index dropped 3.6 percent as overseas investors sold more of the nation’s stocks than they bought following net sales of $1.3 billion in September.

The government’s benchmark three-year bonds gained for a second day. The yield on the 3.5 percent debt due June 2014 fell six basis points, or 0.06 percentage point, to 3.48 percent, Korea Exchange Inc. prices show. Benchmark ten-year bond yields dropped 14 basis points to 3.8 percent.

South Korea’s consumer prices rose 4.3 percent in September from a year earlier, down from a 5.3 percent gain in August that was the biggest in three years, government data showed today. The median estimate in a Bloomberg News survey was for a 4.5 percent increase. Exports climbed 19.6 percent in September, the slowest growth in three months, according to an Oct. 1 report.

--Editors: James Regan, Sandy Hendry

To contact the reporter on this story: Jiyeun Lee in Seoul at jlee1029@bloomberg.net

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


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