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Korean Won Climbs, Bonds Fall on IMF Forecast, Spain

South Korea’s won weakened as bad loans surged in Spain, re-igniting concerns the European debt crisis is deepening. Government bonds were little changed.

Spain’s non-performing loans as a proportion of total lending jumped to 8.16 percent in February, the highest level since 1994, the central bank said yesterday. Bank of Korea Governor Kim Choong Soo said that while an improving global outlook may provide a boost to his nation’s export-driven economy in the second half, downside risks will probably persist due to volatile oil prices and problems in Europe, according to today’s statement.

“Spain’s bad-loan issue and Italy cutting its growth forecast are renewing concerns over Europe’s periphery states,” said Byeon Ji Young, a Seoul-based currency analyst at Woori Futures Co. “Still, with events including Spain’s debt auction and U.S. data coming up today, investors will refrain from betting aggressively on a stronger dollar.”

The won fell 0.1 percent to close at 1,138.05 per dollar, according to data compiled by Bloomberg. The currency pared earlier losses of as much as 0.4 percent on speculation exporters sold the greenback, according to Kim Do Hee, a Seoul-based currency dealer at Australia & New Zealand Banking Group.

One-month implied volatility for the won, a measure of exchange-rate swings used to price options, slid 35 basis points, or 0.35 percentage point, to 8.08 percent.

Sales at major South Korean department stores rose 1.6 percent in March from a year earlier, after a 2.9 percent gain the previous month, government figures showed today.

North Korean Threats

Spain will issue as much as 2.5 billion euros ($3.3 billion) of two- and 10-year bonds at today’s auction. Italy’s economy will shrink 1.2 percent this year compared with the previous forecast for a contraction of between 0.4 percent and 0.5 percent, the government said yesterday. U.S. releases its jobless claims and existing home sales data today.

North Korea is prepared to wage a “holy war” against South Korean President Lee Myung Bak’s government and would take “special action” against targets that could include central Seoul, its state media said late yesterday.

The yield on South Korea’s 3.25 percent bonds due December 2014 was little changed at 3.49 percent, Korea Exchange Inc. prices show. Three-year debt futures climbed 0.01 to 104.05 and the one-year interest-rate swap slipped one basis point to 3.51 percent.

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