Korean Won Falls to One-Week Low on China Slowdown; Bonds Drop

South Korea’s won fell to a one- week low as global stock declines and signs China’s economy is slowing sapped demand for riskier assets. Bonds retreated.

Premier Wen Jiabao announced this month an economic growth target of 7.5 percent for this year, down from an annual 8 percent over the past seven years. BHP Billiton Ltd., the world’s biggest mining company, said yesterday China’s steel production is slowing. The won extended losses as North Korea threatened the South against raising the nuclear issue at a security summit to be held in Seoul next week.

“The won’s decline is driven by reports that China’s economy may slow,” said Lee Jin Ill, a Seoul-based currency dealer at Hana Bank. “Currency drops will be limited though, making the won move within a range, as negative reports about China are already discounted.”

The won dropped 0.4 percent to 1,129.50 per dollar at the close in Seoul, according to data compiled by Bloomberg. The currency touched 1,129.75, the weakest since March 15. One-month implied volatility, a measure of exchange-rate swings used to price options, fell one basis point to 8.23 percent.

The Kospi Index (KOSPI) of shares retreated 0.7 percent, falling for a second day, after the Standard & Poor’s 500 Index snapped a three-day gain in New York.

The yield on the 3.25 percent notes due December 2014 climbed three basis points, or 0.03 percentage point, to 3.62 percent, Korea Exchange Inc. prices show. Three-year debt futures declined 0.1 percent to 103.53. The one-year interest- rate swap climbed one basis point to 3.57 percent.

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