Korean Won Drops to Six-Month Low on Cyprus Concerns; Bonds Gain

South Korea’s won sank to its weakest level in almost six months as overseas investors cut their holdings of the nation’s stocks amid concern a levy on bank deposits in Cyprus will worsen Europe’s debt crisis.

The Kospi index of shares fell 0.9 percent as the euro dropped to its lowest level this year against the dollar after Cypriot President Nicos Anastasiades bowed to demands by euro- area finance ministers to raise 5.8 billion euros ($7.5 billion) by taking a piece of every bank account in Cyprus. Government bonds advanced, sending the three-year yield to a record low, as overseas investors sold more Korean shares than they bought for a third day.

“The European risk sparked by the turmoil in Cyprus is spurring concern among investors and turning sentiment in favor of safer assets,” said Son Eun Jeong, an analyst at Woori Futures Co. in Seoul. “That’s having a negative impact on South Korean stocks and currency. Still, exporters may look for opportunities to sell dollars if the won keeps falling.”

The won fell 0.3 percent to close at 1,114.70 per dollar in Seoul, extending to eight days the longest losing streak since August 2008, according to data compiled by Bloomberg. The currency earlier touched 1,119.05 per dollar, the weakest since Sept. 27. One-month implied volatility for the won, a measure of expected moves in the exchange rate used to price options, rose 42 basis points, or 0.42 percentage point, to 9.46 percent.

The yield on the 2.75 percent bonds due December 2015 declined one basis point to 2.6 percent, according to prices from Korea Exchange Inc. That’s the lowest closing level on record for a three-year note.

To contact the reporters on this story: Seyoon Kim in Seoul at skim7@bloomberg.net

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

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