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Korean Won Posts Weekly Gain as Improving Economy Spurs Inflows

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Dec. 28 (Bloomberg) -- South Korea’s won completed a sixth weekly gain as signs of a pickup in the economy attracted funds from abroad and exporters repatriated income. Government bonds advanced.

The current-account surplus widened to a record $6.88 billion in November, central bank data showed today. Industrial output expanded 2.3 percent from the previous month, the biggest gain since January and exceeding the 0.8 percent median forecast in a Bloomberg News survey. Overseas funds bought $295 million more Korean shares than they sold this week through yesterday, exchange data show. The Bank of Korea said yesterday it will use policy to maintain the economy’s growth potential.

The won appreciated 0.4 percent from Dec. 21 to 1,070.53 per dollar at the close in Seoul, according to data compiled by Bloomberg. It rose 0.2 percent today and touched 1,070.50, the strongest level since Sept. 8, 2011. This year’s 7.7 percent advance is the biggest among Asia’s 11 most-traded currencies. Local financial markets will closed Dec. 31 and Jan. 1, before opening an hour later than usual on Jan. 2.

“The won started trading stronger on the current-account surplus and exporters will be selling dollars as the year-end approaches,” said Byeon Ji Young, a Seoul-based currency analyst for Woori Futures Co. “Still, there are concerns the government may intervene to prevent the won from appreciating on the year’s last trading day.”

One-month implied volatility, a measure of expected moves in exchange rates used to price options, slid six basis points this week to 4.84 percent. It was 13.55 percent at the end of 2011.

Growth Outlook

The yield on South Korea’s 2.75 percent bonds due September 2017 fell four basis points, or 0.04 percentage point, to 2.97 percent this week, Korea Exchange prices show. The rate fell six basis points today. The one-year interest-rate swap fell two basis points from a week ago to 2.78 percent.

“There are speculations the new government may use interest rates to support the economy after the finance ministry lowered growth forecast and the central bank pledged to focus on growth,” said Lee Gil Won, a Seoul-based fixed-income trader at Shinhan Bank. “Overseas investors bought a lot of bond futures today, which may have been window dressing at the end of the year.”

The finance ministry cut its 2013 growth forecast to 3 percent, from a September projection of 4 percent, and lowered its estimate for expansion this year to 2.1 percent from 3.3 percent.

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

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

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