South Korea won falls on signal of rule change, suspected intervention

SEOUL: The South Korean won ended weaker in domestic trade Thursday, reversing initial gains after the South Korean government said it will take action to slow the currency's rapid appreciation.

The local currency was quoted at 1,085.9 at the end of onshore trade Thursday, 0.5 percent below its intraday high of 1,080.2. It was quoted at 1,083.2 at the end of the Seoul session on Wednesday.

Deputy Finance Minister Choi Jong-ku said South Korean authorities may cut the maximum-allowed levels for banks' currency derivatives trading positions as early as next week. Such a move would reduce what he called were excessive expectations for the won's gains.

Dealers said they believe that the South Korean authorities on Thursday also bought up to $1 billion in dollars during intraday trade to slow the won's rise against the US currency.

"The general trend for the won's appreciation remains intact, but it will be hard for the market to push the currency higher for the time being given how forceful the authorities are about the exchange rate," a local bank dealer said.

It's unclear the degree to which authorities might cut the banks' currency derivatives ceilings. But any reduction would help reduce speculative bets on the local currency.

The won is up by more than 6 percent against the dollar so far this year, with the pace of the appreciation accelerating since September

Dealers said Choi's comments will leave investors wary of testing the 1,080 resistance level for the won, leaving the market trapped in a narrow range in coming days if there are no major external developments.

The benchmark Korea Composite Stock Price Index rose 0.8 percent at 1,899.50. Foreigners were net sellers of 38.5 billion won ($35.54 million) worth of local shares on Thursday.

Local bonds ended lower on profit-taking pressures amid renewed risk appetite. December futures on three-year treasury bonds ended down 0.10 points at 106.09.

Yields on the benchmark five-year treasury bonds and three-year treasury bonds each rose by two basis points from Wednesday's close.