South Korea's won fell

South Korea's won fell the most in a month after Deputy Finance Minister Kim Sung Jin said the government is ready to take action to stem gains that pushed the currency to its highest since 1997.

``If the won moves because of speculative forces, the government and the central bank will, are ready to, and are determined to take appropriate steps when needed,'' Kim said at a briefing in Gwacheon, South Korea today. ``The won has appreciated too much against the dollar.''

South Korea's currency has risen 12 percent in the past two years. Yesterday it touched the highest since the 1997 Asian financial crisis after a report showed the economy grew at the fastest pace in 18 months and Moody's Investors Service upgraded the country's credit rating. The government is concerned a higher won will hurt exporters.

``They're going to try to convince the market that the won isn't going to do well and there's always the threat that they can take action to make it happen,'' said Sebastien Barbe, senior economist at Calyon based in Hong Kong.

The won fell to as low as 918 per dollar from yesterday's close of 913.90 and traded at 917.20 at 12:17 p.m. in Seoul.

Kim said Finance Minister Kwon Okyu would discuss the weakness of the yen at a meeting of Asia-Pacific Economic Cooperation finance ministers in Australia July 30 to Aug. 3.

Yen's Drop

The won has climbed 2.7 percent against the yen this year. Japan and South Korea compete to sell cars, ships and electronics. It traded at 7.6099 per yen at 12:01 p.m. in Tokyo from 7.608 yesterday.

South Korea has been seeking to stem gains in its currency. The government tripled the ceiling on investment by individuals on property abroad to $3 million in January. Home purchases abroad jumped to $603 million in the first half, almost doubling from a year earlier, according to the central bank.

``There are a number of issues that market players need to heed,'' Kim said in an interview yesterday. ``The current account surplus is dwindling and the fund outflow is rising, which has resolved an excessive supply of foreign currency.''

Lee Kwang June, director general at the central bank, said yesterday economic growth may slow. Gross domestic product grew 1.7 percent in the second quarter from the first, the bank reported yesterday.

Current Account

The current-account surplus, the broadest measure of international trade, will shrink to a decade-low of $2 billion in 2007 from $6 billion in 2006, the central bank said July 10.

The surplus will narrow because of cooling global demand for exports and the rising cost of imports such as oil. South Korea buys all of its petroleum-based products.

Exports on a customs-cleared basis are forecast to rise 13.1 percent this year, slowing from growth of 14.4 percent in 2006, the central bank said on July 10.

The won yesterday reached a decade high after the GDP report and Moody's boosted the local-currency credit rating to A2, the first increase in five years, bringing it into line with Japan, Hungary and Israel.

Kim said the gains in the won and the stock market, which yesterday rose to a record, were overdone.

Stock Market

``The stock and foreign exchange markets are overreacting,'' he said. ``The reduction in the geopolitical risk associated with North Korea's nuclear ambition has already been priced in the market.''

``Korea's favorable macroeconomic performance will likely continue over the near term,'' Moody's Senior Vice President Thomas Byrne said yesterday, also citing the government's ``fiscal prudence'' and progress in talks with North Korea on dismantling its nuclear weapons program.

The Moody's upgrade ``provides room to give a positive impact on other rating agencies' rating changes,'' Kim said in a briefing today. Officials from Standard & Poor's are expected to visit South Korea in August for an annual review, he said.

source:bloomberg.com