The South Korean won rose against the U.S. dollar Wednesday on the back of the country's record-high trade surplus in March and the greenback's weakness against its major peers.

The local currency closed at 1,102.4 won per dollar, up 7.1 won from the previous session's close, snapping a two-day loss. The won hit an intra-day high of 1,101.60 won at one point.

South Korea's trade surplus reached a new monthly high in March despite a fall in exports as imports shrank at a faster rate, government data showed.

The country's overall exports came to US$46.99 billion last month, down 4.2 percent from the same month last year, according to data compiled by the Ministry of Trade, Industry and Energy.

Imports plunged 15.3 percent on-year to $38.6 billion, resulting in a trade surplus of $8.39 billion. March marked the 38th consecutive month of surplus.

"Sound economic data (a record trade surplus) works to help the won gain against the U.S. dollar," said Jun Seung-ji, an analyst at Samsung Futures Co. "Also, dollar selling by local exporters further adds downward pressure on the won-dollar rate."

But analysts said the won's strength may be capped due to growing divergence in global monetary policy.

The U.S. Federal Reserve is widely expected to raise borrowing costs possibly in the second half of the year.

The Bank of Korea is under growing pressure to again trim its base rate to ward off possible deflation and slowing growth momentum.

South Korea's inflation increased 0.4 percent in March from a year earlier, the smallest gain since July 1999, stoking worries that the economy is falling into deflation.

It is the fourth month in a row that consumer inflation has grown below the 1 percent mark, well below the government's 2 percent gain target for this year.

The decelerating consumer prices in Asia's fourth-largest economy, along with weak outbound shipments, may put further pressure on the central bank to take an additional rate reduction in the coming months.

Last month, the central bank unexpectedly lowered the benchmark interest rate to a record 1.75 percent citing weaker than expected growth momentum.

The bank is scheduled to hold its monthly rate-setting meeting on April 9, and is widely expected to again lower its growth outlook for the year. (Yonhap)