S Korea Won Down Late On Mideast Turmoil; Bonds Rally

The South Korean won was lower against the dollar late Tuesday in Seoul, weighed by growing unrest in the Middle East and North Africa, while a 6.3 magnitude earthquake in New Zealand also roiled markets.

Political upheaval in the Middle East and North Africa--where key oil-producing nations are located--hit the won hard as South Korea is a major importer of crude oil, traders said.

Steep losses in the local stock market and falls in the other regional currencies-- such as the New Zealand dollar and the Australian dollar--following the quake in New Zealand, put further pressure on the won, they added.

U.S. markets were unable to provide leads after being shut Monday.

"All sorts of negative news for the won pushed the dollar to higher-than-expected levels today," said a local bank trader.

Active export settlements provided some support for the won in the afternoon, but offshore players continued to dump the won, keeping the dollar well-supported above KRW1,124.

"The Middle East situation, followed by a rise in oil prices, will likely continue to spur strong-dollar sentiment in the near term," though, robust exports are expected to cushion any slide in the won, said Samsung Futures analyst Jeon Seung-ji.

Treasury bonds and bond futures rallied as Mideast and North Africa tensions spurred safe-haven demand, participants said.

March bond futures rose 31 ticks to end at 102.85 on active buying from foreign investors and banks.

Foreign investors were net buyers of bond futures for three straight sessions, buying more than 9,000 contracts in net on Tuesday alone. Banks switched to become net buyers, from being net sellers Monday.

"There seems to be some change in the market's preference from riskier assets to safe-haven assets," said another local bank bond trader.

But he noted that the changing risk sentiment was unlikely to lead to a sustained rally in bonds as the Bank of Korea is widely expected to raise the base rate at its March policy meeting. "The market is likely to stay volatile until then," he added.