Korea Won Falls Most in a Week as Funds Sell Stocks; Bonds Gain
By Kim Kyoungwha
Dec. 2 (Bloomberg) — South Korea’s won fell the most in a week as overseas investors sold the nation’s stocks after U.S. shares tumbled yesterday on speculation the global economic slump is worsening. Bonds rose.
Korea’s currency erased half the gains it made during the past five days as global funds cut their local stock holdings after four days of net purchases, according to Korea Exchange Inc. South Korea’s economy grew less than initially estimated last quarter due to weaker exports and domestic demand, the central bank said today in Seoul.
“The tumble in stocks set a bearish tone for the won,” said Lee Myung Hoon, a currency dealer at Industrial Bank of Korea in Seoul. “Recent foreign buying failed to create a pattern that could lend support to the currency market and they have now turned to net selling.”
The won declined 1.2 percent to 1,457.25 per dollar as of 11:33 a.m. local time, according to Seoul Money Brokerage Services Ltd. The currency has weakened 36 percent this year, the worst performer of the 10 most-traded Asian currencies outside Japan.
The Kospi stock index fell 3.7 percent, losing ground for a second day. Asia’s fourth-largest economy expanded a revised 0.5 percent in the three months to Sept. 30 from the prior quarter, the weakest pace since 2004, the central bank said. Growth for the quarter was estimated to be 0.6 percent on Oct. 24.
The Bank of Korea sold $4 billion in U.S. currency to local banks struggling to secure foreign funds, as planned, at an average yield of 6.8 percent.
The central bank is using its $30 billion currency-swap line with the Federal Reserve for the first time to provide the funds, it said in a statement in Seoul today.
Bonds Rally
Korea’s bonds rallied as the prospect of an economic recession fueled expectations the central bank will lower borrowing costs again this month.
Bank of Korea Governor Lee Seong Tae lowered the benchmark interest rate for the third time in four weeks on Nov. 7, cutting it to 4 percent. Lee has hinted he’s ready to act again to support the economy. Board members next meet on Dec. 11.
The yield on the benchmark bond due September 2013 fell 19 basis points, or 0.19 percentage point, to 4.64 percent, according to the Korea Securities Dealers Association.
To contact the reporters on this story: Kim Kyoungwha in Beijing at kkim19@bloomberg.net.
Last Updated: December 1, 2008 22:22 EST