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Korea Won Halts Six-Day Drop as Government Pledges Action

May 17 (Bloomberg) -- South Korea’s won advanced for the first time in seven days as the government signaled it may intervene to calm the market amid concerns the European debt crisis is deteriorating. Government bonds held steady.

South Korea has enough foreign reserves to cope with the Greek crisis and will take “prompt” action on markets if needed, Vice Finance Minister Shin Je Yoon said at an emergency meeting today before markets opened. European Central Bank said yesterday it will temporarily stop lending to some Greek banks to limit risks, as the nation heads toward a new election with its euro membership at stake. The Kospi Index of shares rose even as foreign investors cut holdings for a 12th day.

“The won had a technical rebound after falling much in a short period, and there was also caution against government intervention,” said Lee Jin Ill, a Seoul-based currency trader at Hana Bank. “Still, with overseas funds continuing to sell Korean stocks, it’s difficult to say the financial market distress has eased.”

The won climbed 0.2 percent to 1,163.00 per dollar in Seoul, after declining 2.6 percent in the last six days, according to data compiled by Bloomberg. The currency touched 1,165.60 yesterday, the weakest level since Jan. 9. One-month implied volatility for the won, a measure of exchange-rate swings used to price options, slid 90 basis points, or 0.9 percentage point, 10.53 percent.

The yield on South Korea’s 3.25 percent bonds due December 2014 was little changed at 3.40 percent, Korea Exchange Inc. prices show. Three-year debt futures slid 0.05 to 104.43 and the one-year interest-rate swap advanced two basis points to 3.39 percent.

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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