Won Erases Loss as China Stocks Pare Drop, Exporters Sell Dollar

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South Korea’s won reversed an earlier loss to advance for a second day as a selloff in Chinese equities abated and exporters sold dollars before the month-end.

The Kospi index of stocks halted a two-day drop as shares in China, the largest export market for South Korea, pared losses Tuesday. A gauge of the dollar stayed near the lowest in more than a week before the Federal Reserve starts a two-day meeting to discuss raising borrowing costs.

The won advanced 0.2 percent to close at 1,164.69 a dollar in Seoul, data compiled by Bloomberg show. The currency earlier dropped as much as 0.3 percent to 1,170.59, near a three-year low. It has declined 4.2 percent this month, the most in Asia.

“It seems the worries over Chinese stocks calmed a bit, reducing demand for safer assets,” said Jude Noh, chief currency trader at Suhyup Bank in Seoul. “Korean exporters sold dollars heavily in the afternoon and pushed the won up.”

The Shanghai Composite Index closed 1.7 percent lower, after earlier sinking as much as 5.1 percent and gaining 1 percent. It slumped 8.5 percent on Monday, the biggest one-day drop since 2007. China Securities Regulatory Commission, in a statement issued after the close of trading on Monday, assured investors that policy makers haven’t withdrawn support for equities.

The won is likely to strengthen as the nation runs current account surplus, one of the seven board members of the Bank of Korea said at its July 9 policy meeting, according to the minutes released on the central bank’s website Tuesday. The BOK held its key interest rate at a record low of 1.5 percent in July, opting to monitor the impact of four cuts in the past year and the government’s fiscal stimulus program.

South Korea’s government bonds fell, with the 10-year yield rising five basis points to 2.39 percent, Korea Exchange prices show. The three-year yield climbed three basis points to 1.74 percent.