Korean Won Strengthens as Italian Debt Sale Spurs Risk-Taking

South Korea’s rose for the first time in three days after increased bids at an Italian government debt sale damped concern Europe’s debt crisis will worsen, bolstering demand for emerging-market assets.

Foreign investors added $237 million to their holdings of Korean shares yesterday after net purchases of $2.8 billion last week, the most since September 2009, exchange data show. Italy sold 364-day bills at 2.767 percent, compared with 2.697 percent on July 12. Investors bid for 1.69 times the amount of bills sold, from 1.55 times last month.

“There are some foreign inflows into the stock market that are supporting the won,” said David Kang, a currency analyst at Woori Futures Inc. in Seoul. “There is some small positive news on Italy, but it’s not a game-changing situation.”

The won climbed 0.2 percent to 1,128.80 per dollar as of 10:09 a.m. in Seoul, according to data compiled by Bloomberg. One-month implied volatility, a measure of exchange-rate swings used to price options, rose 15 basis points to 7.13 percent. The Kospi Index advanced 0.9 percent, recouping a 0.7 percent loss yesterday.

The yield on the 3.25 percent government bonds due June 2015 increased two basis points, or 0.02 percentage point, to 2.85 percent, Korea Exchange Inc. prices show. Three-year debt futures declined 0.07 to 106.02 and the one-year interest-rate swap rose two basis points to 2.89 percent.

To contact the reporter on this story: David Yong in Singapore at dyong@bloomberg.net.

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

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