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Korean Won Advances Most in Three Months on U.S. Budget Progress

Jan. 2 (Bloomberg) -- South Korea’s won gained by the most in more than three months after the U.S. House passed a bill to avert the so-called fiscal cliff of automatic spending cuts and tax increases. Government bonds declined.

The bill was passed with a 257-167 vote, undoing income-tax increases for more than 99 percent of households in the world’s largest economy, providing a victory for President Barack Obama. South Korean inflation eased to a four-month low of 1.4 percent in December, official data showed on Dec. 31.

“Expectations that the U.S. fiscal cliff issue may be resolved are helping ease concerns in the currency market,” said Jeon Seung Ji, a foreign-exchange analyst at Samsung Futures Inc. in Seoul. “The expectations are weakening demand for the dollar.”

The won appreciated 0.7 percent from Dec. 28 to close at 1,063.45 per dollar at 3 p.m. in Seoul, according to prices from Seoul Money Brokerage Services. That was biggest gain since Sept. 14. Local financial markets were closed on Dec. 31 and Jan. 1 before opening an hour later than usual today.

South Korean Finance Minister Bahk Jae Wan said today that he’s worried about “herd behavior” in the currency market. The government is “actively” reviewing possible measures for the foreign-exchange market, he told reporters.

Exports dropped 5.5 percent in December from a year earlier, after a revised 3.8 percent increase in November, official data showed Jan. 1. That was the first decline in three months. Overseas sales will rebound 4.1 percent this year from 2012, resulting in a trade surplus of $25 billion, the government forecast yesterday.

The yield on South Korea’s 2.75 percent bonds due September 2017 gained one basis point, or 0.01 percentage point, to 2.98 percent, Korea Exchange prices show. The one-year interest-rate swap was little changed at 2.78 percent.

To contact the reporter on this story: Seyoon Kim in Seoul at skim7@bloomberg.net

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

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