Seoul shares fall;Samsung Imaging up on merger hope

* KOSPI retreats 0.9 percent

* Samsung Imaging up on Samsung Elec merger speculation

* SK Telecom rises on China Unicom stake sale news (Updates to mid-morning)

By Jungyoun Park

SEOUL, Sept 28 (Reuters) - Seoul shares fell on Monday as disappointing U.S. economic data weighed on sentiment, but shares in Samsung Digital Imaging 108070.KS rose on market talk Samsung Electronics (005930.KS) may absorb its camera-making affiliate.

As of 0206 GMT, the Korea Composite Stock Price Index .KS11 (KOSPI) was down 0.94 percent at 1,675.51 points.

"Without strong buying by foreign investors, markets are turning lower, and weaker-than-expected U.S. economic data are weighing on sentiment," said Choi Seong-lak, a market analyst at SK Securities.

Foreign investors were net sellers for a third consecutive session, offloading 40 billion won ($33.15 million) worth of stocks.

Samsung Digital Imaging was up 4.2 percent on market talk that Samsung Electronics, the world's No.1 memory chipmaker, may absorb the camera maker.

"Samsung Electronics is No.1 in televisions and No.2 in mobile handsets, and it could be looking to strengthen its place in the camera sector. In that regard, absorbing Samsung Digital makes sense," said Lee Ka-keun, an analyst at IBK Securities.

Samsung Electronics was down 1.38 percent.

The Korea Exchange has asked both Samsung Electronics and Samsung Digital Imaging to clarify the rumours.

SK Telecom (017670.KS) rose 2.92 percent after China Unicom Ltd (0762.HK) said on Sunday it would buy back a 3.8 percent stake held by South Korea's top wireless carrier for about $1.29 billion. [ID:nN2715845]

"This is seen as a good move. It comes as a sign that SK Telecom is working to re-allocate its assets and to manage them more efficiently," said Choi Nam-gon, an analyst at Tong Yang Securities.

Separately, South Korea's telecom regulator said on Sunday that the country's three mobile service providers would lower tariffs and other charges under a government initiative aimed at supporting households. [ID:nSP395067]

"Such news has been expected for sometime, and is already reflected in the current levels of their shares as they have been underperforming the broader market," Choi said. He added however that the news was negative for the earnings of the telecommunications companies.

KT (030200.KS) Corp, South Korea's dominant fixed-line operator and No.2 mobile carrier, was up 0.25 percent.

But LG Chem (051910.KS) fell 2.17 percent after Citi downgraded its rating to "hold" from "buy", but raised its target share price to 265,000 won from 184,000 won.

($1=1206.5 Won) (Reporting by Jungyoun Park; Editing by Chris Lewis)