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Won Falls Most in a Week as Stocks to Bonds Drop on GDP Outlook

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July 24 (Bloomberg) -- South Korea’s won fell the most in a week as a report showing the economy grew at the slowest pace in more than a year sent stocks and government bonds lower.

Gross domestic product expanded 0.6 percent in the second quarter from the previous three months, the central bank said today, less than the 0.7 percent median estimate in a Bloomberg survey. The finance ministry cut its 2014 growth estimate to 3.7 percent from 3.9 percent and unveiled a 11.7 trillion won ($11.4 billion) stimulus to shore up Asia’s fourth-largest economy.

The won snapped a three-day rally to fall 0.5 percent to 1,028.78 per dollar at the close in Seoul, data compiled by Bloomberg show. The decline was the biggest since July 15. One-month implied volatility, a gauge of expected swings in the exchange rate used to price options, rose 29 basis points, or 0.29 percentage point, to 5.63 percent.

“There is a strong sentiment favoring dollar purchases,” said Jude Noh, a Seoul-based chief currency trader for Suhyup Bank. “Investors think negative forecasts for the economy will prevail for now.”

The Bank of Korea held its benchmark seven-day repurchase rate unchanged at 2.5 percent for a 14th month on July 10. Six of 23 analysts surveyed by Bloomberg expect borrowing costs to be lowered this quarter.

Sovereign bonds reversed earlier gains before the government announced stimulus measures and tax breaks to boost spending.

The yield on notes maturing March 2024 rose four basis points to 3.01 percent, Korea Exchange Inc. prices show. The yield on bonds due June 2017 climbed three basis points to 2.50 percent after earlier falling to 2.45 percent, the lowest for a three-year benchmark note since May 2013.

The Kospi index fell 0.1 percent to close at 2,026.62 after earlier gaining as much as 0.3 percent. It closed at the highest level this year on July 22.

“Local institutions are selling today as some investors take profit after the recent rally,” said Park Jae Hong, a fund manager at Brain Asset Management Co. in Seoul.

To contact the reporters on this story: Jiyeun Lee in Seoul at jlee1029@bloomberg.net; Sharon Cho in Seoul at ccho28@bloomberg.net

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

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