(LEAD) Seoul shares dip 1.4 pct on growth, currency woes

(ATTN: ADDS bond yields and background in last two paras)

SEOUL, Oct. 1 (Yonhap) -- South Korean stocks dipped to their lowest level in more than two months on Wednesday on concerns over the pace of economic recovery and pro-democracy protests in Hong Kong. The local currency fell sharply against the U.S. dollar.

The benchmark Korea Composite Stock Price Index (KOSPI) shed 28.55 points, or 1.41 percent, to 1,991.54, the lowest level since July 14, when it closed at 1,993.88 points. Trading volume was moderate at 347 million shares worth 3.35 trillion won (US$3.16 billion), with decliners far outnumbering gainers, 648 to 190.

The index opened lower on overnight losses in U.S. stocks, sparked by weaker-than-expected consumer sentiment in the world's largest economy.

In the afternoon, the index extended losses on news that the won's slide against the U.S. dollar was accelerating, which can stoke a capital outflow from the local stock market. The index hit an intra-day low of 1,989.54 points.

"The strong dollar may cause a further decline in the local stock market, and market conditions are likely to be bad for the time being," said Lim Dong-rak, an analyst at Hanyang Securities.

Foreign investors offloaded more than 200 billion won worth of local stocks, while retail investors scooped up a net 143 billion won.

South Korea's industrial output shrank at the sharpest pace in nearly six years in August, raising worries that the economic recovery might be losing its momentum, earlier government data showed.

According to the report by Statistics Korea, production in the mining, manufacturing, gas and electricity industries fell 3.8 percent last month compared with July. This marked the largest on-month drop since December 2008 when it contracted 10.5 percent.

Investors also remained worried over escalating protests in Hong Kong, which could have negative impacts on China's economy, South Korea's top export destination.

Top steelmaker POSCO shed 3.35 percent to end at 317,500 won, and shipyards such as Hyundai Heavy Industries remained in a slump.

LG Chem, the country's leading chemicals firm, dropped 2.54 percent to end at 249,000 won.

Other market heavyweights remained in negative terrain.

Market bellwether Samsung Electronics fell 2.36 percent to close at 1,156,000 won, and chipmaker SK hynix moved down 0.75 percent to end at 46,400 won.

Financial shares also closed lower with Shinhan Financial Group falling 1.44 percent to end at 47,900 won. KB Financial Group, the country's No.2 banking group by market value, dropped 2.46 percent to finish at 37,600 won.

In contrast, some defensive shares closed higher.

Top mobile carrier SK Telecom rose 2.41 percent to finish at 297,000 won, and state-run utility firm Korea Electric Power Corp. added 1.14 percent to end at 48,750 won.

The local currency ended at 1,062.70 won against the greenback, falling 7.5 won from the previous session's close, losing ground to the dollar for the fifth consecutive day.

Bond prices, which move inversely to yields, ended sharply higher on expectations of another interest rate cut by the Bank of Korea. The yield on three-year Treasurys sank 6.2 basis points to 2.235 percent, and the return on the benchmark five-year government bonds declined 6.8 basis points to 2.430 percent.

The central bank trimmed its base rate by a quarter percentage point in August to help revive the sluggish economy. Analysts expect the bank to cut its policy rate to a record low of 2.00 percent in the coming months given the local currency's continuing strength against the Japanese yen and economic uncertainties facing Asia's fourth-largest economy.

sam@yna.co.kr
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