South Korea's currency rose to the U.S. dollar for a fifth day Thursday as weak data from the U.S. stoked speculation that the Federal Reserve's rate hikes may come later than expected.

The Korean won closed at 1,061.50 to the greenback, up 1.6 won from the previous session's close. The local currency rose to as high as 1,057.40 won at one point.

Data released on Wednesday showed that U.S. retail sales dropped by a sharper than expected rate of 0.3 percent in September, following the four-month high gain of 0.6 percent in August, deepening the lingering concerns over slowing growth in China and Europe. 

Also, the U.S. Treasury Department said on Wednesday in a report to Congress that the Korean won should be allowed to appreciate further, given the country's sizeable current account surplus, large reserves and undervalued currency.

"Following slowdowns in Europe and China, the U.S. economy's performance seems to be sluggish," said Chung Kyong-pal, an analyst at KEB Futures Co.

"The U.S. Treasury Department's report said that the won should be appreciated, but its impact on the market is not so powerful at the moment."

South Korean government bonds continued to advance as investors rushed to safer assets while the global stock market has been suffering sharp drops.

Also, market expectations for another rate cut fueled demand for government bonds, analysts said.

The yield on benchmark three-year Treasurys stood at 2.270 percent in the morning session, down 1.4 basis points from the previous session's close. The yield on five-year Treasurys also fell 3.7 basis points to 2.455 percent.

The comparable figure for 10-year Treasurys reached 2.765 percent, down 5.7 basis points.

On Wednesday, the Bank of Korea (BOK) cut its base rate for the second time in three months to support growth in Asia's fourth-largest economy. It trimmed its policy rate by a quarter percentage point to match a record low of 2 percent, following a 0.25 percentage point reduction in August. 

The central bank downgraded its growth forecast for Asia's fourth-largest economy to 3.5 percent for the year from the previous 3.8 percent.

Bond prices, which move inversely to yields, have been soaring over the past few weeks as investors bet that the central bank would trim its base interest rate. (Yonhap)