Seoul shares slip; investors shrug off N.Korea report

* KOSPI slips, but nearly flat despite N.Korea report

* Defence issues rally

* Ssangyong Motor up on court order for rehab plan

(Updates to close)

By Jungyoun Park
SEOUL, May 25 (Reuters) - Seoul shares ended nearly flat on
Monday, finishing the session calmly despite reports of a North
Korean nuclear test and short-range missile launch, as robust
retail and foreign buying lent support and defence issues
outperformed.

The Korea Composite Stock Price Index .KS11 (KOSPI) ended
down 0.20 percent at 1,400.90 points, recouping earlier losses of
almost 6.3 percent to a session low of 1,315.21.

"The news flash of North Korea's nuclear test initially
spooked investors, whose sentiment had already been weakened by
the news of former President Roh's suicide," said Y.S.Rhoo, a
market analyst at Hyundai Securities.

"But investors have learned over time that North Korea is
more of a political than financial matter. But I think market
participants need to take a more cautious approach on that. We
have to pay closer attention to how the international community
reacts to this," Rhoo added.

Markets around Asia also reacted with relative calm, with
Japan hardly flinching at the end of the day. Japan's Nikkei 225
Index .N225 rose 1.31 percent, while Shanghai Composite Index
.SSEC was up 0.50 percent as of 0612 GMT.

Continued robust buying by both foreign and retail investors
lent support to Korea's main index, with foreign investors buying
a net 209.7 billion won ($166.6 million), purchasing for a
seventh consecutive session, while retail investors bought a net
247.3 billion won.

Defence issues, including Huneed Technologies (005870.KS) and
Victek (065450.KQ), rallied after North Korea said it had
successfully conducted a nuclear test early on Monday.
[ID:nSEL000621]

Huneed, a manufacturer of wireless communications equipment
for military purposes, ended up by the daily limit of 15 percent,
and Victek, a maker of military equipment parts, advanced 14.89
percent.

Samsung Techwin (012450.KS), a maker of aircraft engines,
advanced 4.4 percent.

But many key blue chips retreated, with Samsung Elec
(005930.KS), the largest counter in main index by market
capitalisation, down 0.91 percent, and POSCO (005490.KS), the
world's No.4 steelmaker, declining 0.63 percent.

South Korea's top carmakers outperformed as sales for May are
expected to be stronger than previously projected, indicating
improved prospects for earnings.

"The won-dollar exchange rate has remained quite favourable
for carmakers' exports in May, maintaining the 1,200-per-dollar
level. The South Korean government's temporary tax incentives
have boosted domestic sales," said Kevin Lee, an analyst at
Goodmorning Shinhan Securities said.

Hyundai Motor (005380.KS) climbed 2.33 percent, and Kia
Motors (000270.KS) rose 5.37 percent.

Ssangyong Motor (003620.KS) jumped 8.75 percent after the
cash-strapped sports utility vehicle maker on Friday said a court
had ordered it to draw up a rehabilitation plan by mid-September,
taking into account the impact of its possible collapse.
[IS:nT92576]

"The fact that Ssangyong has been asked to submit the
rehabilitation plan implies the court's belief that the troubled
carmaker is worth saving," said Lee Sang-hyun, an analyst at Hana
Daetoo Securities.

($1=1258.5 Won)