Won Strengthens as Easing Ukraine Tensions Support Risk Demand

South Korea’s won strengthened the most in a week as indications of easing tensions in Ukraine increased investor appetite for riskier assets.

Stocks rose, with the Kospi Index gaining 0.9 percent after the Standard & Poor’s 500 gauge reached a record, as Russian President Vladimir Putin said he sees no immediate need to invade eastern Ukraine. South Korea’s foreign-exchange reserves swelled to an unprecedented $351.79 billion last month, the central bank reported today. The defense ministry said North Korea fired seven short-range missiles yesterday.

The won gained 0.2 percent, the most since Feb. 26, to 1,070.94 per dollar at the close in Seoul, according to data compiled by Bloomberg. One-month implied volatility, a gauge of expected moves in the won used to price options, declined 37 basis points to 7.50 percent.

“The won will be supported following positive news from Ukraine,” said Han Sung Min, a Seoul-based currency trader at Busan Bank. “But with investors waiting for U.S. employment data and the European Central Bank meeting due this week, movements will be limited.”

Economists surveyed by Bloomberg News expect the European Central Bank to keep the 0.25 percent benchmark rate at the March 6 meeting. U.S. employers added 150,000 jobs in February, the most in three months, a separate survey showed before Bureau of Labor Statistics due March 7.

Overseas investors withdrew 1.8 trillion won ($1.7 billion) from South Korean bonds last month after posting a net investment of 655 billion won in January, the finance ministry said in a statement yesterday. South Korea isn’t expected to see fluctuations in bond flows from overseas investors, Kim Jin Myung, director of the finance ministry’s treasury bureau, said today.

China, Bonds

China, South Korea’s largest overseas market, retained a target for 7.5 percent economic growth in 2014, signaling limits on the leadership’s efforts to curb pollution and credit expansion in the world’s second-largest economy. The goal was given in a work report that Premier Li Keqiang will deliver to the annual meeting of the legislature in Beijing today.

The yield on South Korea’s 3.25 percent government bonds due September 2018 fell one basis point, or 0.01 percentage point, to 3.20 percent, according to Korea Exchange Inc. prices.

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