South Korean factory output grew unexpectedly for a third consecutive month in October, data showed on Wednesday, strengthening the chance the central bank will lift interest rates next year.
The industrial output index in October rose a seasonally adjusted 2.6 percent from the previous month, compared with the median 0.8 percent drop forecast in a Reuters poll and following a revised 3.1 percent gain in September.
Government bond prices gave up their early gains to turn weaker as the data, together with a separate government indicator suggesting an upbeat economic outlook, improved the prospect of a rise in interest rates.
Investors have said the central bank could lift interest rates early next year, if local housing prices kept growing despite a series of government steps and as long as Asia's third-largest economy stayed on a sustained growth track.
"The market's focus has recently been shifting toward an increasing probability of a rate increase and today's production data reinforced the probability even further," said Kong Dong-rak, a fixed-income analyst at SK Securities.
Industrial output in October rose 4.6 percent from a year earlier, data from the National Statistical Office showed, below a 5.8 percent gain forecast in the Reuters survey.
But the effect of slower annual growth was outweighed by strong monthly growth and the statistics agency's separate data showing the economy's outlook had improved in October. The agency said its leading composite index - compiled from 10 types of indicators about the future - rose 4.5 percent in October from a year earlier, accelerating from a 4.1 percent rise in September. It releases only the growth rates.
Treasury bond December futures gave up more than an earlier gain of 13 ticks to close down four ticks at 108.67. Analysts said South Korean exports were expected to fare better next year than many had earlier predicted as the effect of a slowing US economy would be offset by robust economies elsewhere, such as Europe and China.
"The figures showed South Korea's economy is in very good shape, led by strong exports, and that US and global economies are healthy," said Oh Suk-tae, an economist at Citigroup.