Korean Won Pares Advance on Suspected Intervention; Bonds Fall

South Korea’s won pared gains, retreating from the strongest level since February, after the central bank was suspected of selling the currency to limit appreciation. Government bonds declined.

The currency rose 0.3 percent to close at 1,084.13 per dollar in Seoul, according to data compiled by Bloomberg. It earlier rose as much as 0.45 percent to 1,081.95, before erasing the advance in the 9:30 a.m. to 10 a.m. period. The won is still up 5.3 percent this quarter, the most among 24 emerging-market currencies tracked by Bloomberg, as overseas investors boosted their holdings of the nation’s stocks by $4.8 billion. Global funds were net buyers of the securities today for the 13th day in a row.

“Foreign funds are buying local stocks, which have supported the won, based on optimism that global economies are recovering,” said Jeon Seung Ji, a currency analyst at Samsung Futures Inc. in Seoul. “Authorities likely bought dollars which slowed the won’s gain.”

Industrial output in China, South Korea’s biggest export market, rose 10.4 percent in August from a year ago, the National Bureau of Statistics said in Beijing today. That’s the fastest pace in 17 months, according to Bloomberg data. Bank of Korea Director General Jung Yung Taek said last week economic growth is accelerating as overseas sales improve. Shipments increased 7.7 percent from a year earlier in August, the biggest increase since January, official data show.

Intervention Risk

The central bank “must have intervened,” said Han Sung Min, a currency trader at Busan Bank in Seoul. Jung Ho Seok, head of the Bank of Korea’s Foreign Exchange Market Team, declined to comment on the matter when contacted by phone today.

South Korea will take steps to check currency volatility, including imposing a levy on banks’ foreign-currency debt and a cap on lenders’ currency forward positions, if “herd behavior” causes drastic movements, the Finance Ministry said in June.

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, fell 33 basis points, or 0.33 percentage point, to 7.69 percent.

The yield on South Korea’s 2.75 percent bonds due June 2016 climbed one basis point to 2.96 percent, Korea Exchange Inc. prices show. The central bank will leave its benchmark interest rate at 2.5 percent at a Sept. 12 policy meeting, according to all 15 estimates in a Bloomberg survey.

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