Korean Won Advances Most in Seven Weeks on Cyprus; Bonds Rise

South Korea’s won strengthened the most in seven weeks after Cyprus reached a tentative agreement on an international bailout, easing concern Europe’s debt crisis will escalate.

Government bonds remained at a record low while the Kospi Index of shares climbed 1.5 percent, the most in almost five weeks, as finance ministers from the 17-nation euro area approved the Cyprus accord. South Korean Finance Minister Hyun Oh Seok said on March 23 that won gains against the yen pose a risk to the nation’s exports and said stabilizing exchange rates should be an important part of government policy.

“The news on Cyprus helped ease investor concerns about a European debt crisis, prompting currencies like the won to rise,” said Son Eun Jeong, an analyst at Woori Futures Co. in Seoul. “Exporters are also seen to sell dollars from their overseas income, while government comments on the currency may limit further gains in the won.”

The won rose 0.8 percent to 1,110.85 per dollar in Seoul, the biggest gain since Feb. 4, according to data compiled by Bloomberg. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, dropped 14 basis points, or 0.14 percentage point, to 8.17 percent. Against the yen, the won rose 1 percent today and is up 23 percent in the past six months.

The yen is weakening as monetary easing boosts the supply of the currency, giving Japanese manufacturers of electronics and cars an advantage over Korean rivals. South Korea’s Hyun called on the Group of 20 nations to discuss the “weak yen problem.”

The yield on South Korea’s 2.75 percent bonds due December 2015 stood at 2.58 percent, according to prices from Korea Exchange Inc.

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