Korean Won Falls as Importers Seen Buying Dollars; Bonds Advance

South Korea’s won fell, erasing earlier gains on speculation importers took advantage of its recent advance to buy dollars. Government bonds rose.

The currency climbed the most in three weeks yesterday as Hyundai Heavy Industries Co., the world’s biggest shipbuilder, received a $3.3 billion power plant order from Saudi Arabia and global investors pumped $1.27 billion into local equities in 11 straight days of net buying. A drop in Korean property transactions and concern about a possible Federal Reserve tapering of stimulus pose risks to the economy, the Finance Ministry said in a monthly economic assessment today.

The won fell 0.2 percent to 1,115.51 per dollar in Seoul, according to data compiled by Bloomberg. It earlier touched 1,111.91, the strongest level since July 30. The currency gained 0.9 percent yesterday, the most in three weeks.

“Importers may pursue dollars,” said Park Jung Hyun, a currency trader at Hana Bank in Seoul. “Overall, the trading volume is thin as many traders are on summer vacation.”

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, was little changed at 7.08 percent, data compiled by Bloomberg show.

Overseas funds turned net sellers of South Korean shares today, according to exchange data, after U.S. stocks fell from record highs yesterday as investors weighed data showing stronger-than-forecast growth in service industries and a comment from Fed Bank of Dallas President Richard Fisher saying investors mustn’t rely on the central bank’s $85 billion in monthly bond purchases.

US Data

The Institute for Supply Management’s non-manufacturing index increased to 56 in July from 52.2 the prior month, a report from the Tempe, Arizona-based group showed yesterday. The median forecast in a Bloomberg survey of economists called for a gain to 53.1. Readings higher than 50 indicate growth.

The won and Taiwan’s dollar “look relatively resilient” to the possibility of wide swings in foreign capital flows this quarter, Goldman Sachs Group Inc. said in a research note dated yesterday.

The yield on the 2.75 percent bonds due June 2016 dropped one basis point, or 0.01 percentage point, to 2.91 percent, according to Korea Exchange Inc. prices.

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