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WRAPUP 1-S.Korean exports, housing prices extend recovery

Reuters - Thursday, July 2

* South Korea's June exports fall on year, but up on month

* Housing prices rise in June for third consecutive month

* Consumer inflation hits 22-month low, but seen bottoming

* Cenbank unlikely to shift to tightening bias yet - analysts

By Yoo Choonsik and Seo Eun-kyung

SEOUL, July 1 - South Korean exports and housing prices extended their recovery in June, offering fresh evidence Asia's fourth-largest economy is fast pulling out of a slump on the back of worldwide stimulus spending.

Stocks and the won gained on economic recovery hopes, but bond futures also ended sharply higher after lower-than-expected inflation data suggested the central bank would not rush to raise interest rates.

Speculation has been growing that the Bank of Korea would soon consider shifting their policy to a tightening bias on concerns that ample liquidity in the money market could lead to a housing price bubble.

But analysts said the central bank was likely leave its key policy rate at a record low of 2 percent for the rest of the year, although it could take other steps to reduce the money liquidity if asset prices kept rising quickly.

"Despite growing signs of economic recovery, policymakers would not rush to reverse their stimulative policy," said Song Jae-hyok, economist at SK Securities.

"They will rather wait for one or two quarters to confirm whether the recovery is sustained. I don't believe the central bank will hastily raise the rates late this year."

Exports fell 11.3 percent in June from a year earlier, data from the Ministry of Knowledge Economy showed on Wednesday, hitting the top end of expectations in a Reuters poll that ranged between falls of 12.4 percent and 21.0 percent. [ID:nSEO136829]

It was also the smallest decline since October and the value of shipments per working day -- widely used as an indicator of monthly performance -- jumped to $1.40 billion, a rise of more than 9 percent over May's $1.28 billion.

"Improvement in exports is expected to accelerate on a recovery in the global economy and given sluggish overseas sales a year ago. Exports are seen returning to growth (on a year-on-year basis) in the fourth quarter," said Park Sang-hyun, chief economist at HI Investment & Securities.

For a graphic on South Korean exports, double-click: http://graphics.thomsonreuters.com/079/KR_EXP0709.jpg

Influential data from South Korea's top lender, Kookmin Bank, showed housing prices across the country rose for a third consecutive month in June over the previous month, although they remained below last year's levels. [ID:nSEO144812]

Analysts said the latest set of figures indicated the exports-led economy was recovering faster than expected on the back of swift fiscal spending by local authorities and the won's <KRW=> depreciation against most other currencies.

Seoul's main stock market <.KS11> rallied 1.55 percent and the won rose half a percent against the dollar.

But September treasury bond futures <KTBc1>, which initially fell on the strong exports data, later rebounded to finish up 30 after benign inflation data eased concerns about a near-term shift in the interest rate policy.

Consumer prices rose 2.0 percent in June over a year earlier, government data showed later, marking the slowest pace in 22 months and missing market expectations for a 2.3 percent rise in a Reuters poll. [ID:nSEV000742]

For a graphic on South Korean inflation, double-click: http://graphics.thomsonreuters.com/079/KR_CPI0709.jpg

The Bank of Korea has raised interest rates on several occasions to cool the domestic property market even when inflation was heading lower.

The central bank said early this month the slide in domestic economy has halted and that building inflation pressures from a rebound in commodities prices emerged as a fresh threat, prompting investors to bet on an early shift in monetary policy.

Reflecting such expectations, the 1- and 3-year interest rate swaps <KRWIRS> spread widened by some 20 basis points in June.

Economists at several global investment banks have recently said in research notes they were upgrading their view on South Korea following a series of upbeat data.

Official data this week showed that South Korea's factory output rose more than expected and capital investment surged in May. Confidence among manufacturers also jumped, another report said. [ID:nSEO35904]

Economists at Bank of America-Merrill Lynch and Nomura International raised their forecasts for South Korea's 2009 economic growth, while an ING economist said the country could post the strongest economic growth in 21 years in the quarter to June. [ID:nSEO133975]. (Additional reporting by Cheon Jong-woo; Editing by Kazunori Takada)

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