July 2 (Bloomberg) -- South Korea's won rose the most in two weeks on speculation the government bought the currency to help curb the fastest inflation in a decade. Bonds fell.

The won advanced to a one-week high, erasing a loss, as the finance ministry said in its semiannual policy report today that policy makers aim to prevent ``drastic movements'' in the currency. South Korea bought about $7 billion worth of won since the end of May to boost the value of the currency and slow inflation, JoongAng Ilbo newspaper reported yesterday.

``Authorities seem to have sold $2 to $3 billion in the market today,'' said Sam Hong, a currency dealer with Shinhan Bank in Seoul. ``The intervention was an unavoidable choice for them. It left a strong message to the market.''

The won gained 1.2 percent to 1,035 against the dollar at the 3 p.m. close of trading in Seoul, after dropping 1 percent earlier, according to Seoul Money Brokerage Services Ltd.

The won may stop falling because the current-account deficit will narrow, Bank of Korea Deputy Governor Rhee Gwang-Ju said in an interview yesterday.

Korea's currency had traded near a six-week low as crude oil approached a record $143.67 per barrel set on June 30. Korea imports almost all of its energy needs. The won slid 10 percent this year, Asia's worst-performing currency after the baht.

Demand for the currency had also weakened after global funds sold more local shares than they bought for an 18th day.

``With a spike in raw material prices and stock sales by foreigners, demand for the dollar is only intensifying,'' said Kim Sung Soon, a currency dealer with Industrial Bank of Korea in Seoul. ``The market is still fearful that the authorities might step in to shore up the local currency.''

Rhee yesterday declined to comment on the currency policy.

Misperception of Risk

Central banks intervene in currency markets by arranging purchases or sales of foreign exchange. A stronger currency helps limit inflation by lowering the cost of imports.

The current-account deficit, the broadest measure of international trade, will shrink to $2.5 billion in the second half from $6.5 billion in the first six months, Rhee, the central bank's head of international affairs, said. There is a ``misperception'' of the risks posed to Asia's fourth-biggest economy by an increase in overseas debt, he said.

``There will be no convincing reasons that the won will depreciate further,'' said Rhee, 57. ``The won has depreciated since early March but the trend is not likely to continue for the rest of the year.''

Bonds Decline

Five-year government bonds fell for a fourth day on speculation the central bank may opt to raise interest rates to slow accelerating inflation .

Consumer prices will climb 4.8 percent in 2008, higher than a December forecast of 3.3 percent, the bank said in its semiannual outlook in Seoul today. The economy will expand 4.6 percent this year, down from a previous prediction of 4.7 percent and 5 percent growth in 2007, it said.

The yield on the 5.25 percent note due March 2013 rose 7 basis points to 6.03 percent, according to Korea Exchange. The price fell 0.27, or 27 won per 10,000 won face amount, to 98.46. A basis point is 0.01 percentage point.

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

Last Updated: July 2, 2008 03:28 EDT