Newswire

WRAPUP 1-S.Korea June output sees first dip for four months

(refiles to fix typo in 2nd paragraph)

By Kim Kyoung-wha

SEOUL, July 30 (Reuters) - South Korea's industrial output dipped for the first time in four months in June and the current account surplus also fell, data showed on Tuesday, compounding economic fears stemming from turmoil on global financial markets.

Economists said risk factors, which could lead to a deceleration in growth, lay ahead for the economy and would stay the hand of the Bank of Korea in terms of interest rate hikes.

Output in June fell a worse-than-expected 3.6 percent after a 0.5 percent rise in May, driven by fewer working days and strikes at key automakers, the National Statistical Office (NSO) said.

The provisional monthly fall came in below a forecast of a 2.9 percent drop in a Reuters survey of 10 economists.

South Korea also reported a drop in its current account surplus in June to $822.5 million from $1.05 billion a month earlier as the travel deficit of Asia's third-largest economy swelled, the central Bank of Korea said.

Lim Ji-won, an economist at J.P. Morgan, said the data fell short of expectations, although special factors such as the World Cup finals and local elections were partly to blame.

"On the output side, there would be some positive payback in July as one-off factors drove last month's decline", Lim said.

"But policy makers should brace for potential fallouts from global financial market uncertainties."

Bank Of Korea deputy governor Park Cheul weighed in to try and calm potential investor concerns over South Korea's recovery by reassuring interest rates were low enough to support the economy.

"We will maintain the current monetary stance, while closely monitoring the external situation," Park told a breakfast meeting with business leaders.

South Korea's economy is expected to grow 6.5 percent this year after a three percent rise in 2001, the BOK has forecast.

U.S. DECOUPLING

Deputy governor Park played down fears about financial woes in the United States, South Korea's main export market.

"It is inevitable that local markets price in U.S. financial woes for now but corporate reform and a flexible monetary policy will help accelerate a decoupling from wobbly U.S. markets."

Seoul's main share-market index rallied four percent in early trade, mimicking a surge by recently ravaged stocks on Wall Street. The Korean won -2 softened in line with the Japanese yen, while key bond issues tumbled.

Analysts said developments at home and abroad could knock growth off course.

"Risks are stemming from a fall-off in external demand...and domestically, there are manifold risk factors which are likely to restrain private consumption and investment," said Desmond Supple, head of Asia research at Barclays Capital in Singapore.

Among the dangers, Supple cited a 22-percent slide in local equities from a high in mid-April, uncertainties ahead of December's presidential election and the government's efforts to dampen a booming housing market.

"All these suggest that there is indeed a risk of deceleration in growth...which is likely to provide the grounds for the Bank of Korea to (hold off an interest rate hike) over the coming months," Supple said.

The BOK has marked time since May after raising its overnight call rate target to 4.25 percent from a record low four percent.

OUTPUT, CURRENT ACCOUNT SURPLUS

Output rose 5.4 percent in June from a year earlier, less impressive than the 7.7 percent jump recorded in May.

"Production slowed due to the fallout from auto strikes and as the World Cup and elections cut into working days," the NSO said in a statement.

Automobile output fell 20.1 percent in June from a year earlier, although semiconductor output jumped 36 percent. Hyundai Motor's 38,000 unionised workers held partial strikes in June to demand higher wages and bonuses.

Work stoppages were blamed for delaying production and delivery of about 42,000 vehicles worth 540 billion won ($453.7 million). Kia Motors Corp , South Korea's second-largest automaker, suffered similar strikes.

Elections to choose governors and mayors on June 13 created an extra holiday, while firms sent workers home early during the World Cup when the success of South Korea's national team gripped the country.

June's trade data put the first-half current account surplus at $3.57 billion, down sharply from $6.53 billion a year earlier.

The central bank has said a faster rise in imports would squeeze the current account surplus to $5 billion this year from $8.6 billion in 2001.

Park said he expected a $1.5 billion current account surplus in the second half of this year but a widening travel deficit would help turn the surplus into a deficit next year.

For the first six months of this year, the travel deficit rose to a record $1.64 billion.

(Additional reporting by Nam In-soo, Kim Yeon-hee and Maria Golovnina)