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Korean Won Strengthens as Italian Debt Sale Spurs Risk-Taking

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Aug. 14 (Bloomberg) -- South Korea’s rose for the first time in three days after demand rose at an Italian government debt sale, damping concern Europe’s debt crisis will worsen and spurring fund flows into emerging-market assets.

Foreign investors added $237 million to their holdings of Korean shares yesterday after the biggest net purchases since 2009 of $2.8 billion last week, exchange data show. Investors bid for 1.69 times the amount of 364-day bills Italy offered at an auction yesterday, compared with 1.55 times last month.

“There are some foreign inflows into the stock market that are supporting the won,” said David Kang, a currency analyst at Woori Futures Inc. in Seoul. “There is some small positive news on Italy, but it’s not a game-changing situation.”

The won climbed 0.1 percent to 1,129.78 per dollar in Seoul, according to data compiled by Bloomberg. One-month implied volatility, a measure of exchange-rate swings used to price options, rose 3 basis points to 7 percent. The Kospi Index advanced 1.3 percent, recouping a 0.7 percent loss yesterday.

The currency pared gains of as much as 0.3 percent as Morgan Stanley trimmed its growth forecasts for South Korea, citing weaker exports amid a global slowdown.

Overseas shipments shrank 8.8 percent in July from a year earlier, official data showed on Aug. 1, the biggest drop since September 2009. Since then, other reports also showed exports dwindling in Taiwan, China and India.

The yield on the 3.25 percent government bonds due June 2015 increased four basis points, or 0.04 percentage point, to 2.87 percent, Korea Exchange Inc. prices show. Three-year debt futures declined 0.17 to 105.92 and the one-year interest-rate swap rose four basis points to 2.91 percent.

To contact the reporter on this story: David Yong in Singapore at dyong@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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