SEOUL (Dow Jones)--The South Korean won was higher against the U.S. dollar late Thursday, helped by a modest rebound by the euro late in Asia, though trading remained volatile with investors still concerned over the euro-zone debt issue.
The dollar rose to a fresh three-week high of KRW1,144.50 in the morning due to risk-off dollar buying, following a warning from Fitch Ratings Service Wednesday that contagion from Europe's problems could expose the six largest U.S. banks to about $50 billion in risk. But it later fell below KRW1,130.00, weighed by Korean firms' export settlements and stop-loss dollar-selling that was driven by the euro's rebound above $1.3500.
The U.S. unit moved between KRW1,128.90 and KRW1,144.50 Thursday.
Looking ahead, investors are likely to stay cautious amid Europe's ongoing problems and the rising bond yields in Italy, Spain and France, which would limit the risk-sensitive won's upside, said Woori Futures currency analyst Byeon Ji-young.
"The dollar isn't likely to test the KRW1,150.00 level right away, because investors are wary of possible dollar-selling intervention by the authorities around that level. Still, the dollar/won pair should have more upside than downside as long as the European debt woes linger," she said.
Byeon tipped the dollar to move in a KRW1,120-KRW1,140 range in the near term.
Korea government bonds were mostly lower on profit-taking after a recent upward run, while some investors unwound earlier bets due to the possibility of a Bank of Korea interest-rate cut early next year. Their expectation for such a cut was due to upbeat U.S. economic data released Wednesday, said Seo Hyang-mi, a fixed-income analyst at NH Investment & Securities.
"The three-year yield looks excessively low, at below 3.35%, considering that the BOK is unlikely to lower the policy rate [of 3.25%]" at least until March next year, Seo added. But, she said, yields could slide further if the euro-zone's problems worsen.
She tipped the three-year yield to stay in a 3.35%-3.45% band for the rest of the month.
Lead December bond futures ended 11 ticks down at 104.47.
-By Jieun Shin, Dow Jones Newswires; 822-3700-1905; jieun.shin@dowjones.com
