Korean Won Set for Biggest Monthly Loss Since February 2009; Bonds Fall

South Korea’s won completed its biggest monthly loss since February 2009 as signs the global recovery is losing steam and Europe’s debt crisis prompted investors to favor the dollar’s relative safety. Bonds fell.

The currency weakened today as a government report showed industrial production fell more than economists forecast in August. Overseas investors sold $1.5 billion more Korean stocks than they bought this month through yesterday, based on exchange figures. Data tomorrow is expected to show exports rose in September at the slowest pace in three months, according to a Bloomberg survey of economists.

The won tumbled 9.45 percent this month to 1,178.10 per dollar at the 3 p.m. close in Seoul, according to data compiled by Bloomberg. The currency fell 0.4 percent today as Greece struggles to meet the terms of a bailout.

“Demand for the dollar was strong recently because of Europe’s debt crisis,” said Lee Jung Ha, a senior currency dealer with Korea Development Bank in Seoul. “I expect the fear that’s dominating the market to ease in the coming month as Europe shows some progress in containing the crisis.”

The central bank reported yesterday a current-account surplus of $401 million for last month, the smallest amount since January. Government data showed today that factory output fell 1.9 percent in August from July, the biggest drop since February. Output was expected to decline 0.3 percent, according to the median estimate in a Bloomberg survey of economists.

Mounting Risks

Export growth slowed to 16.6 percent in September from 25.9 percent in August, based on the median estimate in a separate survey. Manufacturers’ confidence held at a 21-month low while consumer confidence was the weakest since March, according to central bank reports this week.

The International Monetary Fund lowered its forecast for global economic growth this year to 4 percent from 4.3 percent last week. Its Managing Director Christine Lagarde said the downside risks to global economy are “piling up.”

South Korea’s benchmark three-year bonds declined this month, paring a quarterly advance. The yield on the 3.5 percent debt due June 2014 rose four basis points, or 0.04 percentage point, since the end of August to 3.54 percent, Korea Exchange Inc. prices show. Benchmark notes of that maturity yielded 3.76 percent at the end of June, according to data compiled by Bloomberg.

Inflation seems to have moderated in September with food prices stabilizing, Finance Minister Bahk Jae Wan said today. The economy continues to see a gradual recovery, even while facing uncertainties, Bahk said.

To contact the reporter on this story: Jiyeun Lee in Seoul at jlee1029@bloomberg.net

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

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