Won strengthens on U.S. stimulus package

Korean stocks closed 0.34 percent lower yesterday as the worsening U.S. manufacturing index raised concerns about global economic recovery and induced institutions and foreigners to sell shares. The local currency strengthened versus the U.S. dollar.

The benchmark Kospi dropped 6.74 points to finish at 1,957.21, and trading volume was 342.2 million shares worth 4.05 trillion won ($3.67 billion).

While a surge in the electricity, gas and communications industries has been noticeable, shares of food and beverage, textile, garment and retail companies have suffered from poor performance.

LG U+ hit the daily trading ceiling thanks to a surprisingly positive first-quarter earnings report. On the other hand, Woori Financial Group plunged 5 percent due to less-than-stellar earnings.

Hyundai Merchant Marine saw a sharp drop of 9.8 percent as its financial risk was highlighted.

The won reached its strongest point in seven weeks against the dollar and bond yields fell to a record low as Korea posted a trade surplus and the U.S. Federal Reserve’s stimulus program fueled speculation that investors will buy more emerging-market assets.

Manufacturing expanded for a third month, a separate report showed today. The Fed said yesterday it will keep buying $85 billion of bonds each month and stands ready to raise or lower purchases as economic conditions evolve.

“The trade surplus is adding to dollar supply and exporters are selling,” said Jeon Seong-ji, a currency analyst at Samsung Futures in Seoul. “With the Fed maintaining its bond-purchase program, speculation is rising that increased liquidity in emerging markets will support the won.”

The won gained 0.1 percent from Tuesday to 1,100.20 per dollar as of 10:53 a.m. in Seoul. It touched 1,098.15, its strongest value since March 13. Local financial markets were closed for a holiday yesterday. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose 11 basis points, or 0.11 percentage point, to 7.45 percent today.

The yield on the 2.75 percent government bonds due March 2018 fell six basis points to 2.5 percent, according to prices from the Korea Exchange.

By Kim Jung-yoon, Bloomberg [kjy@joongang.co.kr]