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Korean Won Climbs, Bonds Fall on IMF Forecast, Spain

May 7 (Bloomberg) -- South Korea’s won fell the most in a month and government bonds rose after U.S. data showed a slowdown in hiring and French election results fanned concern Europe’s debt crisis will worsen.

U.S. payrolls increased by 115,000 in April, the least in six months, figures showed on May 4. French Socialist Francois Hollande, who has called for a re-negotiation of the budget-discipline pact crafted by European leaders, was elected president. Four Korean mutual savings banks were ordered to halt operations as they failed to meet financial strength criteria, the industry regulator said yesterday. The Kospi Index of shares dropped the most since December following a decline in U.S. stocks.

“U.S. stock declines reflecting weak job data and European concerns will put downward pressure on the won,” said Ryu Kyungwon, a Seoul-based currency trader for the Bank of New York Mellon. “South Korea’s mutual savings bank issue will heighten risk-averse sentiment as it’s the result of a real-estate market downturn and investors are concerned it may spread to the banking sector.”

The won weakened 0.6 percent to 1,138.50 per dollar at the close in Seoul, according to data compiled by Bloomberg. That’s the biggest drop since April 4. One-month implied volatility for the won, a measure of exchange-rate swings used to price options, climbed 42 basis points, or 0.42 percentage point, to 7.80 percent.

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The Bank of Korea will probably leave its benchmark interest rate unchanged at 3.25 percent for an 11th month at a May 10 policy meeting, according to all 13 economists surveyed by Bloomberg News.

The yield on South Korea’s 3.25 percent bonds due December 2014 dropped five basis points to 3.37 percent, Korea Exchange Inc. prices show. That’s the lowest rate since Feb. 1. Three-year debt futures climbed 0.13 today to 104.48 and the one-year interest-rate swap fell two basis points to 3.45 percent.

“With the spread between three-year bonds and the benchmark interest rate having narrowed, local investors were hesitant in buying bonds today but overseas investors were aggressive, especially in the futures market, driving up prices,” said Moon Hong Cheol, a Seoul-based fixed-income strategist at Dongbu Securities Co.

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

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