SEOUL: The South Korean won strengthened against the dollar in domestic trade on Tuesday even after the government tightened foreign exchange regulations to stem the flow of hot money into its markets and curb the currency's appreciation.
Dealers said markets had been expecting a move by the local authorities to restrict capital inflows, and instead focused on the Greece bailout deal which lifted sentiment.
The won was quoted at 1,084.1 at the end of onshore trade, compared with 1,085.5 at the end of the Seoul session on Monday.
The finance ministry said that ceilings on currency derivatives holdings would be cut to 30 percent of equity for local banks from the current 40 percent while the cap for foreign bank branches will be cut to 150 percent from 200 percent.
The move was a "pre-emptive" measure to mitigate the risks posed by capital movements, the finance ministry said, following an ultra-loose monetary policy in several developed countries.
"Impact from the adjustment is limited because even the scope of the reduction in the ceilings had been expected," a dealer said.
The won has gained about 9 percent against the dollar over the past six months and 14 percent against the yen over the same period due to the Japanese unit's weakness globally.
The benchmark Korea Composite Stock Price Index ended up 0.9 percent at 1,952.20. Foreigners were net sellers of 69.4 billion won ($63.94 million) worth of local shares on Tuesday.
Local bonds declined due to improved risk appetite, with the lead December futures on three-year treasury bonds ending 0.06 points lower at 106.03.
Yields on the benchmark five-year treasury bonds and three-year treasury bonds each rose by two basis points.
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