Korean Won Climbs, Bonds Fall on IMF Forecast, Spain

South Korea’s won fell to its lowest level in almost two weeks as political shifts in Europe fanned concern the region’s debt crisis will worsen. Government bonds were little changed.

Dutch Prime Minister Mark Rutte offered to resign yesterday after struggling to clinch an austerity deal. French President Nicolas Sarkozy lost the first round of his re-election bid as the anti-euro National Front won a record share of the vote. Foreign investors sold $761 million more Korean shares than they bought this month through yesterday, exchange data show.

“There is a cycle as to how sensitive investors are to Europe’s problems, and it seems the market is more reactive of late,” said Ryu Kyungwon, a Seoul-based currency trader for the Bank of New York Mellon. “With overseas investors net sellers of Korean stocks, we see more demand for dollars as they repatriate funds.”

The won declined 0.1 percent to close at 1,140.80 per dollar in Seoul, according to data compiled by Bloomberg. The currency touched 1,143.00 earlier, the weakest since April 12.

Exporters may sell dollars as the end of the month nears and investors will be on alert for possible intervention to support the won at levels weaker than 1,140 per dollar,Hong Seok Chan, a Seoul-based currency analyst at Daeshin Economy Research Institute wrote in today’s report.

One-month implied volatility for the won, a measure of exchange-rate swings used to price options, fell nine basis points, or 0.09 percentage point, to 7.75 percent.

North Korea

A North Korean special action squad will turn South’s President Lee Myung Bak and his government into ashes within three to four minutes using “unprecedented peculiar means and methods of our own style,” the communist regime’s military said in a statement carried by its official Korean Central News Agency yesterday, without giving further details. North Korea regularly threatens attacks on South Korea and its government.

The yield on South Korea’s 3.25 percent bonds due December 2014 was little changed at 3.47 percent, Korea Exchange Inc. prices show. Three-year debt futures slid 0.01 to 104.12 and the one-year interest-rate swap was steady at 3.50 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