S.Korea won at 3-wk high, bonds firmer on factory output data

Bond prices also strengthened in response to worse-than-expected readings in April industrial output, which underscored a widening gap between robust exports and languid domestic demand.

South Korea's industrial output fell a seasonally adjusted 1.5 percent in April from a month before, missing market expectations for a small gain.

Retail sales, capital investment and construction starts all stepped back from March, with consumers cutting back on spending due to higher oil and product prices.

"Considering the over 25 percent exports growth in April from a year earlier, the data provided further evidence of poor domestic demand," said Daewoo Securities analyst Yoon Yeo-sam.

"Looking at domestic demand alone, it looks highly likely for the Bank of Korea to hold the base rate in June."

The won was quoted at 1,076.50/80 to the dollar, compared with Monday's domestic close of 1,080.2.

It touched a session high of 1,074.8, the strongest level since May 11, gaining 2.4 percent in less than a week.

Three-year treasury bonds for June delivery rose 0.09 points to 103.86.

Adding to the cautious economic outlook, South Korea's manufacturing business survey index for June fell to a 7-month low, data from the central bank showed.

The government will continue to buy back treasury bonds coming due in 2013 and 2014 ahead of their maturity and plans to issue more longer-dated bonds, a senior finance ministry official told Reuters after the market close on Monday.

Copyright Reuters, 2011