The South Korean won rose on Wednesday after another set of data pointed to a recovery in the domestic economy, helping it outperform Asian currencies including the yen, which weakened against the dollar.
Other Asian currencies steadied against the dollar but rose against the yen on the back of higher regional interest rates, with Japanese rates unlikely to move far from zero for a while.
The won rose to a two-week high of 1,032.8 per dollar, supported by a rebound in service sector output in October which indicated domestic demand, the bane of the economy in recent years, remained on the road to recovery.
The news drove the domestic stock index to a record high.
The South Korean currency hit a seven-year high of 8.6374 against the yen.
Analysts at IDEAglobal said in a note the Bank of Korea (BoK) could soon intervene to stem the won's gains, noting that "8.50 is now being viewed as a critical level on this cross and one that could attract BoK presence".
UBS strategist Bhanu Baweja said that although the won drew support from heavy dollar sales by exporters and buoyant economic data, foreign equity investors were showing signs of nervousness as shares rose to uncharted levels.
Foreigners were net sellers of local shares for the fourth consecutive session on Wednesday.
"The flows on the capital account are turning negative as foreigners have begun to take some profits on their positions in the KOSPI," he said in a note, referring to the South Korean stock index.
He suggested buying the dollar on dips against the won rather than selling on rallies until global imbalances start to hurt the US currency again.
The Philippine peso was an exception, dropping from a 6-1/2-month high hit in early trade to 54.155 per dollar as shares dropped following a government warning on Tuesday that economic growth in 2005 might be below its target after weak third-quarter growth.
Analysts said most Asian currencies were likely to continue to outperform the yen as low interest rates in Japan encouraged more outflows of capital from Asia's biggest economy.
Jan Lambregts, a currency strategist at Rabobank in Singapore, said strong economic growth and rising inflation across Asia were leading Asian central banks to tighten monetary policy, making local deposits competitive.
That was helping the currencies versus the yen, which has been weighed down by the view that the Bank of Japan would not tighten its super-loose monetary policy any time soon.
Asian economies from Singapore to Hong Kong to India have reported stronger-than-expected third-quarter economic growth and their central banks are getting worried about inflation.
Regional currencies are likely to appreciate from the second half of 2006 after US interest rates peak, he added.