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Korean Won Drops, Bonds Gain on Europe Credit Rating Downgrades

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Jan. 16 (Bloomberg) -- South Korea’s won retreated and government bonds gained as Standard & Poor’s stripped France of its top credit rating and cut eight other euro-zone nations, sapping demand for riskier assets.

The Kospi Index of shares declined 0.9 percent after France and Austria were cut one level to AA+ from AAA by S&P on Jan. 13. Spain and Italy were also among the nine nations downgraded. The Bank of Korea kept borrowing costs unchanged at 3.25 percent for a seventh month on Jan. 13, citing bigger downside risks for the global economy.

“The won fell following rate cuts in Europe, but declines were limited as the news was already expected and the stock market reaction was not big,” said Lee Jung Ha, a Seoul-based currency trader at Korea Development Bank. “Importers were demanding the dollar to settle bills, which also put downward pressure on the currency.”

The won fell 0.6 percent to 1,154.85 per dollar in Seoul, after strengthening 1.3 percent last week, according to data compiled by Bloomberg. It touched a one-week high of 1,147.68 on Jan. 13. Local financial markets will be closed on Jan. 23 and Jan. 24 for a holiday.

The yield on South Korea’s 3.5 percent bonds due September 2016 fell one basis point, or 0.01 percentage point, to 3.48 percent, according to Korea Exchange Inc. prices. That’s the lowest rate since Jan. 5.

To contact the reporter on this story: Jiyeun Lee in Seoul at jlee1029@bloomberg.net

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