South Korean factory output grew in November at its fastest pace in six years and a key manufacturing business sentiment index for January rose to an eight-month high, official data showed on Thursday.
Treasury bond prices tumbled on concern the central bank would tighten policy sooner than previously thought after raising interest rates in October and earlier this month.
Stock prices rose on the signs that growth in Asia's fourth-largest economy is picking up.
"The industrial output data came out much stronger than market expectations, reinforcing optimism that the economic recovery has become much clearer than before," said Yang Jin-mo, a fixed-income analyst at SK Securities.
"Both industrial output and price data are likely to influence the Bank of Korea to consider advancing the timing of rate increases," he said. The government releases December consumer price inflation figures on Friday.
South Korea has relied on exports to drive economic growth since a credit card boom soured in 2002 and left households under a mountain of debt.
Domestic demand has revived this year, providing a broader base for economic growth but also raising concerns that it could fuel inflation.
The National Statistical Office said industrial output grew a seasonally adjusted 5.0 percent in November from October, the fastest pace since a 5.6 percent rise in September 1999 and far above a median forecast for a 1.1 percent rise.
Industrial output was 12.2 percent higher than a year earlier, above a forecast for 8.5 percent growth.
The statistical agency also said its consumer goods sales index rose a seasonally adjusted 2.0 percent in November, compared with October's revised 0.5 percent gain.
The Bank of Korea, the central bank, said its manufacturing business survey index for January rose to 88, the highest since 91 in May 2005 and compared with 86 for December.
Kim Jae-chun, head of the central bank's research department, said the data pointed to a continued recovery in economic growth driven by a pick-up in domestic demand.
The annual rate of growth in consumer goods sales will probably accelerate in December from November while industrial output would maintain its recent growth pace, the finance ministry said in a statement.
Yields on the benchmark three-year treasury bond rose as much as 10 basis points to 5.09 percent, while March treasury bond futures ended down 26 ticks at 107.47.
The stock market's benchmark KOSPI index hit a record high of 1,383.14 before finishing the session up 0.82 percent, led by exporters such as Hynix Semiconductor Inc, which rose 6.33 percent.
The central bank raised the overnight call rate target to 3.75 percent from 3.5 percent earlier this month to combat inflation.
It lifted the target to 3.5 percent from a record low of 3.25 percent in October, the first increase in over three years.
Debt investors had been waiting for the November data to try to gauge how quickly the central bank might tighten monetary policy next year. Its next policy meeting is on January 12.