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Won Falls Most in Three Weeks on Fed Taper Concern; Bonds Drop

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Aug. 22 (Bloomberg) -- South Korea’s won fell the most in three weeks after Federal Reserve minutes added to concern that a paring of U.S. stimulus will intensify outflows from emerging markets. Government bonds declined.

Policymakers were “broadly comfortable” with a plan to start trimming bond purchases later this year if the U.S. economy improves, the minutes of the Federal Open Market Committee’s July meeting showed yesterday. South Korea will act swiftly if financial-market volatility increases, the finance ministry said yesterday.

“The FOMC minutes added weight to speculation that Fed tapering will start later this year, which means a further rout in emerging-market currencies,” Son Eun Jeong, a Seoul-based currency analyst at Woori Futures Co., wrote in a research note today. “The government is trying to assure the market by saying the contagion won’t spread to local markets.”

The won closed 0.5 percent weaker at 1,122.78 per dollar in Seoul, the biggest decline since July 31, according to data compiled by Bloomberg. It was down as much as 0.8 percent earlier. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose 71 basis points, or 0.71 percentage point, to 8.77 percent.

The nation’s household debt rose to a record 980 trillion won ($873 billion) at the end of June, the Bank of Korea reported today. Department store sales fell 2.1 percent in July from a year earlier, compared with a 4.1 percent gain in June, the trade ministry said today.

China’s PMI

A manufacturing index for China, South Korea’s biggest export market, unexpectedly expanded in August from an 11-month low. The preliminary reading of 50.1 for a Purchasing Managers’ Index released today by HSBC Holdings Plc and Markit Economics compared with a final figure of 47.7 in July.

“China’s preliminary PMI data exceeded expectations, which helped lift Asian market sentiment and the won erased some of it earlier losses,” said Han Sung Min, a currency trader at Busan Bank in Seoul.

The yield on the 2.75 percent government bonds due June 2016 climbed two basis points to 2.99 percent, Korea Exchange Inc. prices show.

To contact the reporter on this story: Yewon Kang in Seoul at ykang51@bloomberg.net

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

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