Souht Korea won down on regulation worries; bonds up

SEOUL: The South Korean won fell for a second consecutive day in domestic trade Thursday, with offshore investors seen buying dollars on the expectation authorities will curb the won's gains by more steps to contain capital inflows.

The local currency was quoted at 1,089.0 against the dollar at the end of onshore trade, compared with 1,085.5 at the end of the Seoul session on Wednesday.

Dealers said offshore investors and importers were buying the dollar after Deputy Finance Minister Choi Jong-ku warned on Wednesday that the government may implement new regulations to discourage speculative non-deliverable forwards trading and study the possibility of imposing a currency transaction tax to bolster the country's defenses against rapid capital flows.

"The market is starting to lean towards going long on the dollar with offshore players bidding up the US currency," a local bank dealer said. "But I think there is some caution given the expected supply of dollars to be sold by exporters as the month comes to a close."

A local bank dealer said investors were starting to favor the dollar over the won, driven by offshore investors. But he added that he expected supply of dollars to be sold in the coming days by exporters seeking to convert their contract payments was keeping the market wary of taking excessive bets against the won.

The won rose 7.6 percent against the dollar last year, with the pace of the gains accelerating in the fourth quarter. This prompted warnings from local authorities that the currency was strengthening too quickly.

The local currency was up as much as 1.5 percent against the dollar on Jan. 15 amid expectations for further appreciation as global economic conditions improved and Japan continued to ease policy.

But market sentiment has since changed, in part because of the authorities' warnings, and the won ended January down 1.7 percent against the dollar.

A foreign bank dealer said the dollar-won rate may climb back to the 1,100 level given the recent turn in market events, adding that the trend of appreciation for the local currency may have reversed.

"The fact that Choi made those remarks on Wednesday even after the dollar-won rate has rebounded worries me," he said.

The benchmark Korea Composite Stock Price Index ended down 0.1 percent at 1,961.94. Foreigners were net sellers of 89.2 billion won ($82.18 million) worth of local shares on Thursday.

Local bonds edged up on bargain hunting, with foreigners seen buying won-denominated debt. March futures on three-year treasury bonds ended up 0.04 points at 106.18.

Yield on the five-year treasury bonds fell by one basis point, while yield on the three-year treasury bonds fell by two basis points.