Rupee Sees Best Asia Gain as Won Falls on North Korean Threat

India’s rupee posted the biggest gain in Asia this week as improving data in the U.S. spurred a rally in global stocks and inflows to emerging markets. South Korea’s won fell as tensions with North Korea intensified.

Indonesia and Philippine equity indexes reached records after U.S. services and jobless numbers drove the Dow Jones Industrial Average to an all-time high, boosting prospects for the region’s exports to the world’s biggest economy. Global funds poured a net $1.1 billion into shares in India, Indonesia, the Philippines and South Korea during the week. The won dropped after North Korea warned it may act against the U.S. and other “aggressors” to defend its “supreme interests.”

“Asian currencies were supported by equity-related inflows,” said Ho Woei Chen, a Singapore-based economist at United Overseas Bank Ltd. “At the start of the week, the markets were concerned over tightening measures in China, in particular relating to the property sector.”

The rupee climbed 1.1 percent during the five days to 54.2925 per dollar in Mumbai, the biggest weekly advance since Jan. 18, according to data compiled by Bloomberg. The yuan rose 0.14 percent to 6.2147 and Thailand’s baht advanced 0.2 percent to 29.71.

Morgan Stanley is bullish on the rupee and predicts India’s economy will expand 6.3 percent in the year through March 2014, following estimated growth of around 5 percent in the current period, as the government looks to attract foreign investment and improve public finances.

“Prospective monetary policy easing over the first quarter is likely to be positive for growth expectations and support the currency,” Kritika Kashyap, a Hong Kong-based analyst at Morgan Stanley, wrote in a research report received yesterday.

North Korea

South Korea’s won fell yesterday after the threats from North Korea. The UN Security Council voted unanimously to impose tougher sanctions on North Korea over its latest nuclear test, a measure that may cause provocation from the communist nation, South Korean central bank Senior Deputy Governor Park Won Shik said at an emergency meeting in Seoul yesterday.

The Kospi index of stocks dropped 1 percent this week, its worst five-day performance since the end of January. The won closed 0.3 percent lower at 1,090.46 in Seoul for a weekly drop of 0.5 percent.

“Concerns that North Korean risks are heightening are driving investors away, weakening the currency and the stock market,” said Jang Bo Hyeong, analyst at Hana Institute of Finance in Seoul.

Yuan Appreciation

The yuan had a second weekly gain, supported by the People’s Bank of China raising the fixing yesterday by the most in a month, amid speculation policy makers will allow appreciation to help contain inflation.

Consumer prices currently face pressure from imported inflation and carry over effects, the China Securities Journal reported yesterday, citing central bank Deputy Governor Pan Gongsheng. A rate of more than 3.5 percent may warrant an increase in borrowing costs, probably in late 2013 or early 2014, Cheng Dongqi, a government researcher, said March 7.

The government reported February trade data yesterday that beat forecasts. Overseas sales increased 21.8 percent from a year earlier, compared with a 25 percent advance in January and the median estimate in a Bloomberg survey of 8.1 percent.

“With inflation likely to rise from the middle of the year, the yuan will have to be allowed to appreciate to help curb prices,” Nizam Idris, head of Asian fixed income and foreign-exchange strategy at Macquarie Bank Ltd. in Singapore, wrote in a research report yesterday. Policy makers will be “more tolerant of some yuan appreciation in the months ahead,” he said.

Elsewhere in Asia, Taiwan’s dollar slipped 0.2 percent this week to NT$29.718 against the U.S. currency, while the Philippine peso was little changed at 40.675. Indonesia’s rupiah weakened 0.1 percent to 9,685 and Malaysia’s ringgit dropped 0.2 percent to 3.1060.

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