South Korea's Won Slumps Most in Month as U.S. Stock Losses Sap Confidence

South Korea’s won slumped by the most in a month after stock losses and declining housing starts in the U.S. shook investor confidence, damping demand for riskier emerging-market assets.

The MSCI Asia Pacific Index of regional shares fell the most in two months as China’s economic growth accelerated in the fourth quarter, spurring concern of more policy tightening. The Standard & Poor’s 500 Index suffered its biggest drop since November, after Goldman Sachs Group Inc.’s fourth-quarter profit slid by more than half and the construction of new houses fell to the lowest level since October 2009.

“Markets may have been too optimistic about the U.S. recovery,” said Philip Wee, a Singapore-based currency economist at DBS Group Holdings Ltd.

The won dropped 1 percent to 1,121.20 per dollar as of the 3 p.m. close in Seoul, according to data compiled by Bloomberg. It was the biggest daily loss since Dec. 15.

The Kospi stock index declined 0.4 percent amid concern that China may tighten its monetary policy to temper economic growth. China reported today that its economy expanded 9.8 percent in the fourth quarter, above the 9.4 percent median forecasted by economists in a Bloomberg News survey. The economy grew 10.3 percent for the whole of 2010, the fastest in three years.

South Korea must continue efforts to reduce threats from cross-border capital flows to shield the nation’s economy from external shocks, Governor Kim Choong Soo said yesterday.

“There is a lot of offshore unwinding in the won and the stock losses are probably one reason for that,” said Tae-Gyu Ham, a Seoul-based currency trader at Shinhan Bank. “Another reason is the Korean authorities who are very defensive of the won rising above 1,110. Traders find that it is hard for the won to rise past there, so they are buying back their dollars.”

Benchmark five-year bonds were little changed. The yield on the 4 percent note due September 2015 was at 4.35 percent, according to the Korea Stock Exchange. A basis point is 0.01 percentage point.

To contact the reporter on this story: Patricia Lui at plui4@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net.

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