Korean Won Slumps, Bonds Advance as Greek Vote Fuels Concern Over Default

South Korea’s won fell and bonds advanced for a fourth day on concern next month’s Greek referendum will push the nation to the verge of default, sapping demand for riskier assets.

German Chancellor Angela Merkel and French President Nicolas Sarkozy withheld 8 billion euros ($11 billion) of assistance yesterday on the eve of a Group of 20 summit, warning it will surrender all European aid if Greece votes against a bailout package. Federal Reserve Chairman Ben S. Bernanke said the Fed may take further steps to boost growth, after the policy-setting Federal Open Market Committee.

“Players are reacting more to uncertainties surrounding Greek referendum than Bernanke’s comments on supporting the economy,” said Ryoo Hyun Jung, chief currency dealer in Seoul at Citibank Inc. “Most of Bernanke’s comments were within expectations, and not enough to stoke risk appetite.”

The won posted its longest losing streak in six weeks, sliding 0.7 percent to 1,129.90 per dollar in Seoul, according to data compiled by Bloomberg. The currency weakened 2.2 percent this week. The Kospi Index (KOSPI) of shares fell for a second day to the lowest level since Oct. 21.

South Korea’s economic growth outlook is more uncertain as the global slowdown dims prospects for exports and job creation, the finance ministry said in its annual Macroeconomic Stability Report today. The country needs to prepare more policy responses to cope with a possible crisis, the ministry said.

The government’s benchmark three-year bonds advanced, pushing their yield to a two-week low. The yield on South Korea’s 3.5 percent bonds due June 2014 fell two basis points, or 0.02 percentage points, to 3.44 percent, Korea Exchange Inc. prices show.

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

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

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