Won Rises Most in a Week as China Concerns Ease; Bonds Climb

The won gained the most in more than a week as signs of an easing cash crunch in China helped calm concerns economic growth will slow in South Korea’s biggest export market. Government bonds rose.

Asian stocks advanced after China’s central bank said yesterday it will ensure money-market stability and that the shortage of cash in Asia’s biggest economy will abate. Volatility is increasing due to concerns about China’s economy and the market is “overreacting” to a possible liquidity squeeze, South Korean Finance Minister Hyun Oh Seok said in Seoul today.

The won strengthened 0.5 percent to 1,154.45 per dollar in Seoul, the biggest gain since June 14, according to data compiled by Bloomberg. It touched 1,162.90 yesterday, the weakest level since June 15, 2012.

“China’s central bank gave assurances on easing the credit squeeze, which may support Korean assets,” said Park Hyun, a currency dealer at Woori Bank in Seoul. “Traders will continue watching China’s market situation. Importers may buy dollars when the greenback’s gains slow.”

The cost of locking in China’s interest rates for one year fell for a fourth day after the People’s Bank of China pledged to help ease the nation’s worst cash crunch in a decade. The central bank also called on commercial lenders to improve their liquidity management.

Manufacturing Confidence

The won has weakened 2.2 percent in June, data compiled by Bloomberg show. An index of South Korean manufacturers’ expectations for July fell to 78 from 82 in the previous month, the lowest level since March, the Bank of Korea said in a statement today.

One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, dropped 46 basis points, or 0.46 percentage point, to 11.77 percent. It fell 104 basis points yesterday, the biggest decline since January.

Emerging-market economies may be forced to tighten monetary policy to fight against capital outflows and a rise in global interest rates, Bank of Korea Governor Kim Choong Soo said in a speech prepared for a conference in Seoul today.

South Korea is considering steps to help companies and households cope with climbing interest rates, including measures such as extending the maturity of corporate bonds and boosting debt-market supports, to prevent a possible credit crunch, the Seoul Economic Daily reported yesterday, citing a government official it didn’t name.

The yield on the 2.75 percent government bonds due June 2016 fell three basis points to 2.98 percent, prices from Korea Exchange Inc. show. It yesterday posted the biggest decline for a three-year benchmark since March, sliding 10 basis points.

ING Groep NV raised its end-2013 forecasts for South Korean three-year bond yields to 3.2 percent from 2.8 percent, in line with increasing U.S. rates, Tim Condon, head of Asia research, wrote in a note today.

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