S Korea won roars to 5-week high, bonds retreat

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SEOUL, Oct 27 (Reuters): The South Korean won surged against the dollar Thursday, as European leaders agreed to expand the region's rescue fund and persuaded bondholders to take a 50-per cent haircut on Greek debt, sparking rallies in markets across Asia. The won was quoted at 1,115.2 to the dollar at the end of domestic trade, up 1.5 per cent from Wednesday's close of 1,132.3. It was its largest daily percentage gain in a month, and the South Korean currency touched a five-week peak. "Investors were out in full force to build up shorts in risky assets while selling greenbacks to clear some of their existing long-dollar positions on the positive news coming out of the euro zone," said a local banker. Seoul shares climbed 1.46 per cent to end at 1,922.04, the highest close in 12 weeks as subsiding fears in Europe boosted investor risk appetite. Treasury bond prices slid as enlivened investors embraced riskier assets, despite early bargain-hunting by investors after data showing sluggish GDP growth before the financial markets opened. "Market sentiment is changing now that the KOSPI is seen approaching the psychologically significant 2,000 point milestone. Investors had all but determined that the central bank's base rate could only be slashed, but now they're taking into account the possibility of a hike in the near future as the risk rally continues," said a foreign bond trader. Yields on the benchmark 5-year treasury bonds rose 3 basis points to 3.66 per cent, while 3-year treasury bond yields gained 3 basis points to end at 3.53 per cent. December futures on three-year treasury bonds fell 0.08 points to trade at 103.96.