Feb. 26 (Bloomberg) -- South Korea’s won fell for a second day as Italy’s election results stoked concern that Europe’s debt crisis will worsen. Government bonds rose, pushing the three-year yield to a record low.
Asian stocks dropped and the euro sank to a six-week low as candidates opposing austerity measures demanded by European leaders scored about 55 percent of the popular vote in Italy. Another election may be needed after partial results suggested the four-way race may end in a divided parliament, an aide to Democratic Party candidate Pier Luigi Bersani said. South Korean central bank chief Kim Choong Soo said today the authority won’t tolerate volatile currency moves.
“Political uncertainty in Italy is making investors concerned, reducing appetite for riskier assets,” said Sun Sung In, an analyst at Shinhan Investment Corp. in Seoul. “Governor Kim’s renewed remarks on the currency are also keeping the won low, while exporters look to sell dollars to take profit.”
The won dropped 0.2 percent to close at 1,088 per dollar in Seoul, according to data compiled by Bloomberg. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, climbed one basis point, or 0.01 percentage point, to 7.38 percent.
South Korea’s economic growth relies more on exports than domestic demand, Governor Kim said at a meeting with lawmakers in Seoul today. The central bank will ensure price stability, while looking out for possible delays in economic recovery due to the recent Japanese expansionary policy and fiscal consolidation in advanced countries, Kim said.
Japanese policies that have weakened the yen by 11 percent against the dollar in the past three months are threatening the competitiveness of Korean companies such as Samsung Electronics Co. and Hyundai Motor Co. The won declined 2.3 percent against its Japanese counterpart to 11.82 per yen today.
The yield on South Korea’s 2.75 percent government bonds due 2015 dropped four basis points to 2.64 percent, Korea Exchange Inc. prices show. That is the lowest yield for a benchmark three-year note since Bloomberg began compiling the data in 2000.
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