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Korean Won Slides as Overseas Investors Reduce Equity Holdings

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June 1 (Bloomberg) -- South Korea’s won declined for a second day after overseas investors sold more of the nation’s stocks than they bought, adding to May’s $5.1 billion of net sales, the most since January 2008.

Policy makers should wait for second-quarter economic data before raising interest rates as Europe’s sovereign debt crisis may delay some nations’ exit strategies, the Maeil Business Newspaper said yesterday, citing an interview with Finance Minister Yoon Jeung Hyun. Korean officials want to “do something” to limit currency fluctuations, central bank Governor Kim Choong Soo said at a forum in Seoul today.

“Too many fingers have been burnt in the $5 billion pulled out of Korean equities last month, so I don’t see foreign investors rushing back in,” said Sean Callow, a currency strategist at Westpac Banking Corp. in Sydney. “That’ll work against Korean equities and against the won, which is one of the most sensitive currencies to global sentiment.”

The won slid 1.2 percent to 1,216.18 per dollar as of the 3 p.m. close in Seoul, following last month’s 7.9 percent decline. Callow said he expects the currency to weaken to 1,280 by the end of this month.

South Korea’s exports increased 41.9 percent in May from a year earlier, the most in four months, the Ministry of Knowledge Economy said today. The trade surplus widened to $4.4 billion from a revised $4.1 billion in April.

“Korea’s trade surplus is impressive, it’s certainly a positive for the recovery,” said Westpac’s Callow. “But Korean officials are talking about their concerns about Europe down the track, it’s obviously something that’s bothering them.”

Bonds Rise

Government bonds climbed after foreign investors added to their holdings of Korean debt and a report showed inflation stayed within the central bank’s target.

The yield on the 4.25 percent note due December 2012 fell two basis points to 3.56 percent, according to the Korea Stock Exchange. The price climbed 0.07, or 7 won per 10,000 won face value, to 103.69. A basis point is 0.01 percentage point.

Foreign investors bought 3.5 trillion won more of Korean bonds than they sold last month, even as they trimmed their holdings of the nation’s equities, the Financial Supervisory Service said yesterday.

The consumer price index increased 2.7 percent from a year earlier in May, after gaining 2.6 percent in April, separate data released today showed. The Bank of Korea is targeting annual inflation of 2 percent to 4 percent.

The nation’s benchmark interest rate has been kept at a record-low 2 percent since February last year. The monetary policy board next meets on June 10 to review policy.

To contact the reporters on this story: Bob Chen in Hong Kong at bchen45@bloomberg.net

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

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