South Korea won higher on foreign stock buying

SEOUL: The South Korean won made sharp gains against the dollar on Tuesday, clawing back part of its 2.2 percent drop of the past two weeks as foreign investors rekindled buying of battered Seoul shares.

The dollar/won pair moved back below the 60-day moving average for the first time in more than a week, but failed to break through the 1,070 barrier on persistent uncertainty ahead of French-German talks on the euro zone's worsening debt crisis.

"I wanted to look at further downside in the short term," said a foreign bank dealer, referring to the dollar/won rate. "But given that the dollar/won rate found strong support above 1,060 today, it seems difficult to push the rate further lower in the near term."

The won closed local trade at 1,070.0 per dollar, retreating slightly after hitting a one-week high of 1,067.8 early on the day, compared with 1,078.5 at the end of domestic trade on Friday.

Local financial markets were closed on Monday for a public holiday.

The won, one of best performing emerging Asian currencies this year, had been relatively stable compared with the local stock market, which had tanked 16 percent in the last two weeks amid a global market rout.

Foreign investors chased back shares after a two-week selling binge, while scaling back their recent buying in Treasury bond futures. The stock market chalked up the third best gain on record with a 4.8 percent advance.

Meanwhile, bond prices stepped back with yields rising one to two basis points across the curve.

The Bank of Korea's decision last Thursday to keep the policy interest rate on hold at 3.25 percent stoked speculation that at least one more rise could be in store by year-end, pushing shorter-term yields higher.

"Front-end yields will continue to be exposed to policy rate risk while longer-end is moved by weakening fundamentals," said a bond fund manager.

The finance ministry sold 1.5 trillion won worth of 10-year treasury bonds at an average yield of 3.94 percent via an auction.

Separately, the Bank of Korea said after the market close that it would sell 2-year monetary stabilisation bonds worth 2.5 trillion won via an auction on Wednesday.

Copyright Reuters, 2010