Bloomberg News

Korea Won Slides, Bonds Rise as Europe Divided Over Debt Crisis

October 20, 2011

Oct. 20 (Bloomberg) -- South Korea’s won dropped the most in more than two weeks as divisions among European leaders over how to resolve the region’s sovereign-debt crisis bolstered demand for dollars and eroded appetite for emerging-market assets. Government bonds advanced.

French Finance Minister Francois Baroin said yesterday that Europe’s temporary bailout fund would be best enhanced with help from the European Central Bank, a position the ECB and German government continue to oppose. German Chancellor Angela Merkel said yesterday the European Union summit on Oct. 23 will not be “the end point” of the debt crisis that requires more than “a magic wand” to solve.

“Demand for dollar increased after some investors saw yesterday’s gains in won as excessive, and also as optimism for Europe’s debt crisis subsided,” said Kim Seong Soo, a Seoul- based currency dealer with Kyongnam Bank. “Investors will be adopting a cautious stance ahead of the European summit this week.”

The won fell 1.1 percent, the most since Oct. 3, to 1,145.18 per dollar in Seoul, according to data compiled by Bloomberg. The currency touched 1,128.52 yesterday, the strongest level since Sept. 19 as South Korea and Japan announced they will expand a currency-swap accord to $70 billion.

Finance Minister Bahk Jae Wan said in parliament today that the nation intervenes in the currency market only when needed to conduct smoothing operations.

The government’s benchmark three-year bonds advanced for a third day. The yield on the 3.5 percent notes due June 2014 fell one basis point, or 0.01 percentage point, to 3.43 percent, Korea Exchange Inc. prices show.

--Editors: James Regan, Ven Ram

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

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net.


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