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Korea Won Hits 12-Week High as Europe Concerns Ease; Bonds Gain

South Korea’s won rose to a 12-week high on speculation Europe’s policy makers will act to resolve the region’s debt crisis. Government bonds advanced.

Germany and Italy’s leaders agreed the two countries “will do everything to protect the euro area,” German government spokesman Georg Streiter said yesterday. The Federal Reserve’s policy makers meet this week amid speculation the central bank will take additional measures to bolster the U.S. economy. South Korean manufacturers’ confidence index for August dropped to the lowest level since May 2009, a report showed today, underscoring the monetary authority’s July 12 decision to cut its benchmark interest rate to boost growth.

“With developments in Europe and expectations ahead of the Fed meeting, there’s risk-on sentiment in the market,” said Cho Young Bok, a currency trader at Daegu Bank in Seoul.

The won strengthened 0.1 percent to 1,137.60 per dollar at the close in Seoul, according to data compiled by Bloomberg. It touched 1,132.45 earlier, the strongest since May 4, and trimmed gains on speculation South Korea’s importers are buying the dollar to settle bills. The currency’s one-month implied volatility, a measure of exchange-rate swings used to price options, slid 16 basis points, or 0.16 percentage point, to 7.82 percent. The Kospi Index of stocks rose for a third day.

Government bonds advanced, reversing earlier losses. The yield on the 3.25 percent bonds due June 2015 slid two basis points to 2.85 percent, Korea Exchange Inc. prices show. Three-year debt futures advanced 0.06 to 106 and the one-year interest-rate swap rose four basis points to 2.89 percent.

“Overseas investors buying bond futures supported bonds, and there were doubts whether European policy makers’ lip service will turn into actual policies,” said Lee Gil Won, a Seoul-based bond trader for Shinhan Bank.

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