Korean Won Rises to Six-Week High, Bonds Decline on GDP Optimism

The won climbed to a six-week high and government bonds fell before a report tomorrow that is forecast to show South Korea’s economy grew the most in a year.

Gross domestic product rose 2 percent from a year earlier in the three months through June, compared with 1.5 percent in the first quarter, according to the median estimate in a Bloomberg survey of economists. Overseas investors bought some 515 billion won ($463 million) more Kospi stocks than they sold this week, exchange data show, and Korea Gas Corp. issued $500 million of dollar-denominated five-year notes yesterday.

“South Korea’s GDP data should be relatively solid and companies have issued foreign currency-denominated bonds recently, which may supply dollars to the market,” said Jeon Seung Ji, a currency analyst at Samsung Futures Inc. in Seoul.

The won gained 0.4 percent to close at 1,112.82 per dollar in Seoul, according to data compiled by Bloomberg. It earlier touched 1,112.76, the strongest level since June 7. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, fell 12 basis points, or 0.12 percentage point, to a two-month low of 7.23 percent.

The won pared gains earlier after a report signaled manufacturing in China, South Korea’s biggest export market, declined more than economists predicted in July.

The Purchasing Managers’ Index for China from HSBC Holdings Plc and Markit Economics showed a preliminary reading of 47.7, compared with the 48.2 median estimate in a Bloomberg News survey of 19 economists. Readings below 50 indicate contraction.

China PMI

“The won had a knee-jerk reaction after China’s worse-than-expected PMI data, reversing the earlier gain,” said Son Eun Jeong, an analyst at Woori Futures Co. in Seoul. “But investors are more immune to China’s slowing growth than before.”

The prospect of the Federal Reserve tapering its $85 billion monthly bond purchases may lead to capital outflows from South Korea, Ronald Man, a Hong Kong-based economist at HSBC, said in a research note today. The nation’s current-account surplus and declining imports will help support the balance of payments, he added.

Fed Chairman Ben S. Bernanke told Congress last week it is “too early” to begin slowing bond purchases that have fueled demand for emerging-market assets.

The yield on South Korea’s 2.75 percent government notes due June 2016 rose two basis points to a one-week high of 2.89 percent, according to Korea Exchange Inc. prices.

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