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Korean Won Advances in Week on Manufacturing Pickup; Bonds Drop

Nov. 1 (Bloomberg) -- South Korea’s won completed a weekly advance on optimism capital inflows will rise amid signs of a manufacturing pickup in the region. Government bonds fell.

China’s Purchasing Managers’ Index rose more than estimated to an 18-month high of 51.4 in September, official data showed today. A similar gauge for South Korea compiled by HSBC Holdings Plc signaled the first expansion since May and Taiwan’s PMI rose to 53 from 52. Foreign investors bought more local stocks than they sold on 45 of the past 46 days, pumping in some $13.2 billion since Aug. 22, exchange data show.

“China’s PMI data lifted sentiment and foreign investors came around to buy local stocks again,” said Choi Sung Hyun, a currency trader at Woori Bank in Seoul.

The won rose 0.12 percent this week to 1,060.80 per dollar in Seoul, according to data compiled by Bloomberg. It was little changed today after falling as much as 0.4 percent. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, lost five basis points from Oct. 25 and rose 27 basis points today to 5.90 percent.

As the won rose 5.9 percent in the past three months, policy makers are considering steps against “herd behavior” in the currency market, Finance Minister Hyun Oh Seok said in Seoul yesterday.

Exports from Asia’s fourth-largest economy increased 7.3 percent in October from a year earlier, the Trade Ministry said today, exceeding the median forecast for a 2.3 percent gain in a Bloomberg survey. Consumer prices climbed 0.7 percent, the least in data going back to 1999, official data showed today.

‘Risk of Deflation’

“We are increasingly uncomfortable with the prolonged disinflation regime and are concerned about the risk of running into deflation in the near term,” Raymond Yeung, Hong Kong-based senior economist at Australia & New Zealand Banking Group Ltd., wrote in a research note today.

The yield on the government’s 2.75 percent sovereign bonds due June 2016 rose five basis points, or 0.05 percentage point, this week and three basis points today to 2.85 percent, according to Korea Exchange Inc. prices.

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

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

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