Korean Won Falls for Second Day on Syria Tensions; Bonds Advance

Aug. 28 (Bloomberg) --The won fell for a second day and government bonds rose on demand for safer assets as the U.S. laid the groundwork for a military strike on Syria to punish the government for an alleged chemicals weapons attack.

The U.S., France and Britain are preparing the legal case for action, moving forces into place and rounding up allies in the region. As part of the build-up, U.S. President Barack Obama plans to release this week an intelligence assessment of the Aug. 21 chemical arms attack outside of Damascus. The MSCI Emerging Markets Index of stocks slipped the most in two months yesterday and Asian currencies dropped against the dollar.

The won fell 0.2 percent to 1,118.43 per dollar as of 9:50 a.m. in Seoul today, according to data compiled by Bloomberg. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, climbed three basis points, or 0.03 percentage point, to 8.12 percent.

“Investors are buying haven currencies as geopolitical risks rise from Syria,” Choi Sung Hyun, a currency trader at Woori Bank Co. in Seoul, wrote in a research note today. “The won’s fall may be limited if exporters add dollar supplies to cover month-end expenses.”

South Korea needs to act preemptively if capital inflows increase to excessive levels as a result of foreigners buying local bonds, a central bank board member said at the Aug. 8 monetary policy meeting, the minutes showed. Policymakers are watching for the impact of the Federal Reserve’s possible paring of its stimulus, Bank of Korea Governor Kim Choong Soo said yesterday. Foreign investors have bought more local bonds than they sold every month since February, exchange data show.

Oil prices rose on speculation the tensions in Syria may disrupt Middle East oil supplies. Brent, the benchmark for more than half of the world’s oil, for October settlement advanced 76 cents, or 0.7 percent, to $115.12 a barrel on the London-based ICE Futures Europe exchange after settling yesterday at the highest since Feb. 25.

The yield on South Korea’s 2.75 percent government bonds due June 2016 fell two basis points to a two-week low of 2.92 percent, Korea Exchange Inc. prices show.

To contact the reporter on this story: Yewon Kang in Seoul at ykang51@bloomberg.net

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net

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