Korean Won Rebounds From 8-Month Low as Stocks Rally; Bonds Drop

South Korea’s won strengthened, rebounding from near an eight-month low, as some investors judged recent declines excessive. Government bonds declined as stocks rallied.

The currency depreciated 4.3 percent last month, the biggest decline since September and touched 1,185.53 per dollar on May 25, the weakest point since October, as a worsening debt crisis in Europe and signs China’s economy is slowing deterred risk-taking. The MSCI Asia-Pacific Index (MXAP) of regional shares climbed 1.4 percent today, snapping a four-day drop that left the gauge at its lowest level since November.

“The absence of any major bad news from Europe was a positive for Asia,” said Kim Sung Soon, a chief currency dealer at state-run Industrial Bank of Korea. “With stocks rebounding, there are some players snapping up bargains after the recent decline in the local currency and the market seems to be full of dollars for now.”

The won climbed 0.2 percent to 1,180.20 per dollar in Seoul, according to data compiled by Bloomberg. Its one-month implied volatility, a measure of exchange-rate swings used to price options, fell 73 basis points, or 0.73 percentage point, to 10.9 percent.

The government will step up policy efforts to boost economic growth while keeping inflation stable, the finance ministry said in its monthly economic assessment report today.

Moody’s View

Asia’s fourth-biggest economy hasn’t changed significantly since Moody’s Investors Service raised its outlook for South Korea in April, a senior vice president for the company in Asia said.

“Nothing fundamental has changed since we raised the outlook,” Tom Byrne told reporters in Seoul today. “The drop in demand from Europe would hurt exports for countries such as Korea and other regions” in the near term, he said.

The yield on the government’s 3.5 percent bonds due March 2017 increased four basis points to 3.38 percent, Korea Exchange Inc. prices show. Yesterday’s closing level was the lowest for a benchmark five-year note since 2004.

Three-year debt futures declined to 104.76 from 104.87 yesterday and the one-year interest-rate swap rose three basis points to 3.31 percent. The Kospi Index of shares gained 1 percent.

To contact the reporter on this story: Kyoungwha Kim in Singapore at kkim19@bloomberg.net;

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

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