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Seoul: Won pares gains, bonds slide after BOK holds rates; shares lower

[SEOUL] The South Korean won pared losses and treasury bonds fell on Thursday, following the Bank of Korea's decision to hold its policy base rate steady, as some investors had priced in expectations of a possible rate cut.

The won was quoted at 1,085.4 to the dollar as of 0235 GMT, compared with 1,082.2 at the end of Wednesday's session.

South Korea's central bank kept interest rates unchanged for a third straight month, in line with expectations, as it monitors economic recovery at home along with euro zone troubles and falling oil prices.

Benchmark 3-year bond futures for March delivery fell 12 basis points to trade at 108.58 as of 0235 GMT, sharply extending losses after Bank of Korea Governor Lee Ju-yeol said the board decision to hold rates was unanimous, disappointing investors banking on an imminent rate cut.

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Market players were also wary of the yen, retreating from a one-month high, as investors took profits and covered short positions after a recent safe-haven rally in the Japanese currency.

South Korean shares edged lower on Thursday, with investors seen on the defensive as weak US economic data and falling commodity prices rekindled worries over global economic growth.

The Korea Composite Stock Price Index (KOSPI) was down 0.16 per cent at 1,910.58 points as of 0235 GMT.

"Consumers gain purchasing power when oil prices fall, but the fact that US retail sales fell in December despite cheap oil has highlighted a serious deflation risk," said Chun Jung-hun, an analyst at Kiwoom Securities.

Data released on Wednesday showed US retail sales had fallen 0.9 per cent in December, much more than anticipated, while investors became further unsettled after the World Bank cut its 2015 and 2016 economic growth forecasts.

Broad risk aversion triggered a net outflow of foreign capital for a fourth-straight session, as offshore funds slashed a net 144.9 billion won (US$133.61 million) worth of KOSPI shares from their portfolios.

Brokerages underperformed, as Hyundai Securities fell 2.7 per cent while Daewoo Securities slid 2.4 per cent.

Consumer staples and utilities were one of the few bright spots in the market as jittery investors took shelter in defensive plays, with foodmaker CJ Cheiljedang gaining 2.9 percent and Korea Gas Corp climbing 3 per cent.

The benchmark KOSPI 200 index was up 0.34 per cent while the junior, small-cap heavy KOSDAQ rose 0.77 per cent.