Korean Won Rises This Week by Most in 2 Months on Stock Inflows

South Korea’s won rose the most this week in two months as overseas investors increased holdings of the nation’s shares and a record jump in U.S. home sales brightened the outlook for exports.

The currency climbed today after funds based abroad bought $373 million more Korean shares than they sold yesterday, the biggest net purchases in almost three weeks, exchange data show. The Kospi stock index reached its best close since Nov. 10 after sales of U.S. existing homes surged 10 percent in October from the previous month. Government bonds gained for a second day.

The won appreciated 0.9 percent to 1,138.55 per dollar as of the 3 p.m. close in Seoul, contributing to a 1.9 percent advance for the week, according to data compiled by Bloomberg. The currency has rebounded 3 percent since touching a two-month low of 1,172.50 on Nov. 24, the day after North Korea attacked an island in the South using artillery, killing four and prompting retaliatory fire.

“We haven’t seen North Korean retaliation, which they pledged to do after the attack, and the lack of negative events let risk aversion subside,” said Dariusz Kowalczyk, senior economist at Credit Agricole CIB in Hong Kong. “Positive sentiment globally boosted appetite for risk assets like the Korean won.”

South Korea’s exports rose 24.6 percent in November, a 13th straight increase, according to official data. The economy will probably expand 6 percent in 2010, Finance Minister Yoon Jeung Hyun said in October, compared with an earlier projection of 5.8 percent.

Bonds Rise

The country’s new defense minister vowed retaliation that would include airstrikes if North Korea makes another attack following last month’s deadly artillery bombardment. The military said yesterday it is preparing to carry out live-fire artillery drills along its disputed western sea border on Dec. 6.

North Korea has increased the number of multiple rocket launchers in its armed forces, bolstering its capability to attack Seoul, Yonhap News reported today, citing a South Korean official it didn’t identify.

The yield on the 3.75 percent bond due June 2013 fell 18 basis points this week to 3.12 percent, the lowest level in more than a month, according to the Korea Stock Exchange. It has fallen 49 basis points from a two-month high of 3.61 percent reached Nov. 5. A basis point is 0.01 percentage point.

“I think the trend of falling yields in the past couple of weeks is almost over,” said Peter Park, a fixed-income analyst at Woori Investment & Securities Co. in Seoul. “Expectations of an improving U.S. economy will lead to optimism about Korea’s growth, and that will add pressure for bond yields to rise.”

U.S. companies added the most jobs in three years and manufacturing expanded for a 16th month in November, reports showed this week. The U.S. is South Korea’s second-largest export market after China.

The Bank of Korea will keep its seven-day repurchase rate unchanged at 2.5 percent at next week’s monetary policy meeting, according to all six economists surveyed by Bloomberg.

To contact the reporter on this story: Frances Yoon in Hong Kong at fyoon2@bloomberg.net

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

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