UPDATE 1-S.Korea Q3 growth surprises on inventories

(For a full table, double-click [ID:nSEO288921])

* Q3 GDP growth hits fastest quarterly pace since Q1 2002

* Pressure builds on central bank to raise interest rates

* Government spending falls, adds to fading stimulus talk (This replaces UPDATE 1, 2, 3 of the series which have been withdrawn [ID:nSEO255937])

By Seo Eun-kyung and Yoo Choonsik

SEOUL, Oct 26 (Reuters) - South Korea's economy grew the most in 7-½ years in the third quarter, sending bond prices down as investors bet the data would increase pressure on the central bank to raise interest rates soon.

Gross domestic product grew a seasonally adjusted 2.9 percent in July to September, above expectations in a Reuters poll for a 2.2 percent rise and marking the fastest clip since the first quarter of 2002. [ID:nSEO160149]

But the Bank of Korea data, released before markets opened on Monday, showed most of the growth in Asia's fourth-largest economy resulted from a change in inventories, which fell less in the third quarter than they had done in the second quarter.

"Technically, all of the growth came from the inventories account but the growth rate is still important," said Lee Sang-jae, an economist at Hyundai Securities.

The economy, heavily reliant on exports, grew a revised 2.6 percent in the second quarter.

Private consumption and capital investment helped quarterly growth, but government spending, construction investment and net exports were a drag, the data showed. That left inventory adjustment the main factor leading to growth in the quarter.

The economy expanded by 0.6 percent in the third quarter from a year earlier, contrary to expectations for a 0.3 percent fall.

The benchmark five-year treasury bond yield KR5YT=KSDA rose 4 basis points to 5.10 percent, the highest closing level since Nov. 21, 2008.

Government spending shrank by a seasonally adjusted 0.8 percent in the third quarter after a 1.1 percent gain in the previous quarter, adding to concerns around the world that the effect from a globally concerted stimulus was quickly fading.

Most analysts expect the Bank of Korea to keep interest rates on hold until early next year, mainly to confirm the global economy has emerged from the worst downturn in many decades.

The Bank of Korea next reviews the 7-day repurchase agreement rate, currently at a record low of 2.0 percent, on Nov. 12.

Its governor, Lee Seong-tae, had said in August and September that the central bank was ready to raise interest rates soon unless property prices and a credit boom subsided, but significantly softened his tone in October. (Editing by Neil Fullick)