South Korea won falls to 3-month low on worry over FX curbs; bonds flat

The local currency was quoted at 1,097.4 against the dollar at the end of onshore trade, marking the third consecutive session of decline, compared with 1,089.0 at the end of the Seoul session on Thursday.

It traded as low as 1,098.3 during Friday's trading, the weakest level since Oct. 26, 2012.

Dealers said offshore players continued to buy the dollar against the won during intraday trading, which eventually triggered short-covering by local investors. Some were seen building dollar-long positions during the session, they said.

"Market sentiment was favoring the dollar, so the dollar-won rate jumped sharply once offshore bids kicked in," one currency dealer said.

A Reuters poll of analysts showed that investors turned bearish on the local currency, building up short positions on the won for the first time since early June over the last two weeks.

Some investors were speculating that local authorities may announce new foreign-exchange market measures to reduce hot money risks as early as this weekend, but a finance ministry official who spoke to Reuters on Friday denied this.

"The timing of an announcement on any new steps will be decided based on market conditions," the official said.

The authorities are likely to tighten existing regulations on banks' foreign-exchange derivatives positions first, but the finance ministry says it will consider the possibility of taxing foreign-exchange or bond transactions to bolster the country's defenses against rapid capital flows.

The benchmark Korea Composite Stock Price Index ended down 0.2 percent at 1,957.79. Foreigners were net sellers of 33.6 billion won ($30.86 million) worth of local stocks on Friday.

Local bonds were nearly flat amid lack of firm cues. March futures on three-year treasury bonds ended down 0.01 points at 106.17.

The yield on five-year treasury bonds ended up one basis point, while the yield on the three-year treasury bonds ended unchanged from Thursday.