South Korean Stocks, Won Drop After North Tests Nuclear Weapon

(Bloomberg) -- South Korea’s stocks and won slumped after North Korea said it had successfully tested a nuclear weapon, seven weeks after launching a long-range missile.

The Kospi index declined for a third day after the North’s official Korean Central News Agency said the successful underground test would “bolster its nuclear deterrent for self- defense.” The won fell the most in more than a week as the U.S. Geological Survey detected a 4.7 magnitude earthquake in the northeast of the communist nation.

The test would complicate efforts to get North Korean leader Kim Jong Il to return to six-nation talks aimed at eliminating its nuclear weapons program. The U.S., Japan and South Korea have accused the reclusive country of developing long-range missile technology to carry a nuclear device.

“This is not a pretty picture, especially with the North’s stern stance,” said Kim Yong Tae, a fund manager at Yurie Asset Management Inc. in Seoul, which manages the equivalent of $1.2 billion in assets. “Investor sentiment will be negatively impacted and it’s going to be difficult to expect big gains in the market in the short-term.”

The won fell 1.2 percent to 1,261.80 per dollar as of 12:25 p.m. in Seoul, paring its gains to 20 percent in the past three months. The benchmark Kospi index dropped 2.3 percent to 1,369.46. Share markets across the region fell with the MSCI Asia Pacific Index down 0.2 percent, reversing an earlier advance of as much as 0.8 percent. The Hang Seng Index of Hong Kong shares dropped 0.8 percent.

United Nations

North Korea launched a rocket that flew over Japan on April 5. It was the second time Kim Jong Il’s regime detonated a nuclear device. The first was in 2006.

The Kospi earlier declined as much as 6.3 percent to the lowest this month. All but one of the 19 industry groups in the index declined. About six stocks fell for every one that rose in the benchmark index.

Samsung Electronics Co., Asia’s biggest maker of chips and flat screens, retreated 2.2 percent to 538,000 won. Posco, Asia’s third-largest steelmaker, fell 2.5 percent to 388,000. KB Financial Group Inc., the owner of South Korea’s biggest bank, dropped 3 percent to 44,050 won. Hyundai Heavy Industries Co., the world’s largest shipyard, lost 2.9 percent to 221,500 won.

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