South Korea Won Strengthens on Optimism Stimulus Measures to Spur Economy

South Korea’s won advanced the most in two weeks on optimism stimulus measures at home and in the U.S. will buoy economic growth and exports.

The currency added to its 2 percent gain this quarter after South Korea said yesterday it will ease mortgage-lending rules, a measure that may spur lending growth and boost the economy. Bank of Korea Governor Kim Choong Soo said over the weekend that the won is more “volatile” than the currencies of the U.K. and Japan. The won also rose to the highest level in a week after U.S. Federal Reserve Chairman Ben S. Bernanke signaled the central bank is willing to do more to boost the economy.

“There’s better risk appetite,” said Frances Cheung, a senior strategist at Credit Agricole in Hong Kong. Comments by the central bank governor “plainly shows the nature of the won. No one really thinks he can really come up with an effective tool to cut down on volatility,” she said.

The won climbed 0.7 percent to 1,187.95 per dollar as of 9:39 a.m. in Seoul, according to data compiled by Bloomberg. The benchmark Kospi stock index rose 1.2 percent. The currency may strengthen to as much as 1,182 today, Cheung predicted.

Bernanke said the U.S. central bank “will do all that it can” to ensure a continuation of the economic recovery, and outlined steps it might take if growth slows. The Bank of Japan is holding an emergency board meeting today to discuss ways to support the nation’s slowing expansion.

“During the second half of this year, day-to-day fluctuation in the currency turned out to be 0.92 percent for the case of Korea,” the Bank of Korea’s Kim said on Aug. 28. That compares with 0.56 percent for the U.K. pound and 0.51 percent for the Japanese yen, he said. “We need a certain kind of instrument or tool to prevent a currency” from being so volatile, he said.

South Korea’s government bonds dropped. The yield on the 3.75 percent note due in June 2013 rose seven basis points to 3.62 percent. A basis point is 0.01 percentage point.

To contact the reporter on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net.

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