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Won Rises to 1-Year High, Bonds Fall on Europe Optimism

Oct. 17 (Bloomberg) -- South Korea’s won strengthened to an almost one-year high and bonds fell as optimism Spain is moving closer to receiving a bailout ahead of a meeting of European leaders supported demand for riskier assets.

Germany is open to Spain seeking a precautionary credit line from the region’s rescue fund, two senior coalition lawmakers said yesterday. European Union leaders hold a summit in Brussels starting tomorrow. The dollar index retreated for a second day after data showed U.S. industrial output expanded a 0.4 percent last month, beating the 0.2 percent gain forecast in a Bloomberg survey. The Kospi index of shares rose following the biggest gain in a month in the Standard & Poor’s 500 Index.

“With European issues settling down, although slowly, I expect the risk-on sentiment to continue for some time and further boost the won,” said Kim Doo Hyun, a Seoul-based chief currency trader at Korea Exchange Bank. “The won is rising at a gradual pace, and I don’t think the speed will be of concern to the government for it intervene aggressively.”

The won advanced for a fifth day, the longest winning streak in a month, gaining 0.2 percent to 1,105.57 per dollar at the close in Seoul, according to data compiled by Bloomberg. The currency touched 1,102.50 earlier, the strongest level since 0ct. 31, 2011. One-month implied volatility, a measure of exchange-rate swings used to price options, slipped 18 basis points, or 0.18 percentage point, to 5.85 percent.

The yield on the 3.25 percent notes due June 2015 climbed three basis points to 2.81 percent, a three-week high, Korea Exchange Inc. prices show. The one-year interest-rate swap advanced one basis point to 2.82 percent.

To contact the reporter on this story: Jiyeun Lee in Seoul at jlee1029@bloomberg.net

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net

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