South Korean Won Rises To 1 1/2 -month High Against Dollar

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Friday in Asia, the South Korean won climbed to its highest level in almost 1 1/2 -months against the dollar after a report showed that South Korea's second quarter GDP expanded at the fastest pace in more than five years, reflecting an improvement in the global economic situation.

The Bank of Korea said today that gross domestic product rose 2.3 percent in the second quarter, from a 0.1 percent growth registered in the first quarter. The GDP has grown for the last two quarters, after contracting 5.1% in the fourth quarter of last year.

However, on an annual basis, gross domestic product eased 2.5 percent, following the 4.3 percent annual contraction in Q1.

Earlier this month,the central bank raised the forecast for the gross domestic product, reflecting a rise in the stimulus spending, low interest rate environment and stabilization in the global economic conditions.

The Bank of Korea now expects GDP to contract 1.6% this year, while it expects the economy to rebound next year, with a 3.6% growth. The latest projections compare to the bank's earlier estimate for a 2.4% GDP decline in 2009 and 3.5% growth for 2010. Moreover, the central bank expects an annual growth of 0.2% in the second half of the year.

South Korea joins China and Singapore in leading a regional rebound, marking a turnaround for an economy whose currency tumbled 26 percent last year on concern companies would be unable to repay foreign debt.

South Korea's President Lee Myung Bak pumped money into the banking system, boosted fiscal spending by 67 trillion won $54 billion) and set up funds to replenish banks' capital. The central bank formed a dollar-swap agreement with the U.S. and cut interest rates.

The central bank pared the benchmark interest rate by 3.25 percentage points between October and February, the most aggressive easing in a decade. Since March, the bank left interest rate unchanged at 2% amid signs of an economic recovery and stable inflation.

The consumer price inflation eased for the fourth consecutive month in June, the National Statistical Office said. Consumer prices were up 2% year-on-year in June, slowing from a 2.7% rise in the previous month. Compared to the previous month, consumer prices fell 0.1%, after remaining flat in May.

The South Korean won advanced to 1242.90 against the dollar during Asian deals on Friday. This set the highest point for the won since June 10. If the Korean currency gains further, it may likely target the 1229.1 level. At yesterday's close, the yen-won pair was quoted at 1245.10.

A further rally in stocks markets boosted emerging-market assets. South Korea's benchmark index KOSPI is currently up by 4.76 points or 0.32% at 1501.72.

On Thursday, the KOSPI had ended up 2.45 points or 0.16% at 1,496.49, extending its winning streak to an eighth straight session.

The South Korean won plunged to a 2 1/2 -month low of 1316.60 against the dollar on July 13 on the back of weak equities. But the Korean currency recovered thereafter and it has appreciated 6% against the dollar.

In Asian deals on Friday, the South Korean won fell to 13.1790 against the Japanese yen. The next downside target level for the Korean currency is seen at 13.242. The yen-won pair closed yesterday's trading at 13.0880.

(Market News Provided by RTTNews)