S.Korea won at 3-yr peak, checked by intervention

SEOUL: The South Korean won gained further on Friday, clinging to a 35-month high against the dollar, but failed to break through the 1,050 resistance on suspected dollar-buying intervention.

Dealers spotted dollar-buying conducted on behalf of the authorities in afternoon trading after the dollar/won pair reached 1,050.0, the strongest reading since late August, 2008. European leaders' agreement on a second-bailout package for Greece boosted investor confidence in risky assets.

The won is the best-performing emerging Asian currency this year with a gain of about 8 percent on the year to date on market expectations that the government may allow it to strengthen further to tame imported inflation.

"Last-minute turnover reached $2 billion," said a local bank dealer. "It indicated the authorities might have bought at least $500 million in dollars."

Another FX dealer suspected the volume of intervention was as much as $1 billion.

The won ended local trade at 1,051.9 per dollar, versus Thursday's close of 1,054.6.

By contrast, treasury bond prices fell on massive selling by foreign investors, who dumped a net 1.3 trillion won worth of three-year treasury futures.

Front-end treasury yields rose 3 to 4 basis points, while 10 to 20-year yields edged up one bp.

Won interest rate swap rates rose by 2 to 3 basis points across the curve.

"We had better wait until industrial output and price data are out," said a local brokerage trader, in reference to a raft of month-end data due next week. "We also need to watch how much power tariffs will be raised."

After the market close, the Bank of Korea said it would offer 1.0 trillion won worth of 1-year and 91-day monetary stabilisation bonds each on Monday.

The central bank will also buy up to 0.5 trillion won in treasury markets on Tuesday for use in its repo market operations.

Copyright Reuters, 2011