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South Korea Won at Fresh 7-Month Low Amid North Korea Risk; Bonds Rise

The South Korean won dropped to a fresh 7-month low against the dollar early on Friday as investors remained wary of more bellicose rhetoric from North Korea as inter-Korean tension has escalated quickly over the past few weeks.

The local currency stood at 1,126.0 per dollar at 0025 GMT, compared with Thursday's domestic close at 1,123.8.

The won slipped to 1,126.9 shortly after markets opened, its lowest mark since September 13.

(Read More: Brace for More Market Tremors From North Korea)

Investors have been increasingly wary of the vitriol from Pyongyang since the North decided to ban entry to workers from the South to the joint industrial complex it runs with South Korea in Kaesong.

South Korea's vice finance minister Choo Kyung-ho warned early on Friday that the impact on markets from tensions with North Korea could be prolonged, and vowed swift and strong action to stabilize markets if needed.

Adding to the tensions, North Korea's state-run KCNA news agency on Wednesday said its military had "ratified" an attack involving "cutting-edge smaller, lighter and diversified nuclear strike means," an apparent reference to miniaturized nuclear weapons. The belligerent rhetoric came amid U.S.-South Korean military exercises, and U.N. sanctions imposed after its latest underground nuclear test.

(Read More: North Korea Likely Revive Nuclear Reactor in 6 Months)

The benchmark Korea Composite Stock Price Index was down 0.6 percent.

June futures on three-year treasury bonds rose 0.08 points to trade at 107.21.