Seoul shares fall on Dubai fears; banks retreat

* KOSPI sinks 2.3 pct as Dubai fears deepen

* Banks, construction issues lead falls

* Defensive, high-dividend issues outperform (Updates to mid-morning)

By Jungyoun Park

SEOUL, Nov 27 (Reuters) - Seoul shares fell on Friday amid deepening concerns about Dubai's debt problems, which hit European markets overnight and continued pressuring construction and financial issues including KB Financial Group (105560.KS).

The Korea Composite Stock Price Index .KS11 (KOSPI) was down 2.27 percent at 1563.21 points as of 0051 GMT.

"South Korean and regional stock markets are reacting to the worsening Dubai debt worries, especially since European markets, and banking issues in particular, responded very negatively to the latest developments," said Lee Kyoung-su, a market analyst at Taurus Investment & Securities.

"South Korean banks have minimal exposure to Dubai, and builders' exposure is pretty limited too. But investors are taking a more cautious approach as as they want to confirm U.S. market reaction and holiday shopping tallies before making any moves," Lee added.

Dubai struggled to ease fears of debt default on Thursday after its move to delay repayments at two flagship firms shook confidence in the Middle East as a center for investment and source of capital. [ID:nGEE5AP167]

The Financial Supervisory Service (FSS) said in a statement dated November 26 that South Korean financial institutions' exposure to Dubai was $88 million, with exposure to Dubai World about $32 million.

But banking issues nonetheless retreated as investors fretted.

Shares in KB Financial Group lost 4.12 percent and Shinhan Financial Group (055550.KS) shed 3.72 percent. Woori Finance Holdings (053000.KS) fell 4.32 percent.

"Although local banks' exposure is negligible, falls in European banking stocks and broader concerns about global banks' exposure are pressuring the sector," said Lim Il-sung, an analyst at Meritz Securities.

"A potential rise in risk premiums may render borrowing costs heavier for banks," Lim added.

Brokerages also led losses, with Woori Investment & Securities (005940.KS) falling 3.76 percent and Hyundai Securities (003450.KS) down 3.47 percent.

Construction issues, which led declines in the previous session, continued to retreat.

Samsung C&T (000830.KS),was down 2.75 percent and Hyundai Engineering & Construction (000720.KS) dropped 2.63 percent.

Samsung C&T currently is working on a project from Dubai's Nakheel worth $350 million, according to a company spokesman.

Defensive issues and shares in companies that historically have given higher yearend dividends however outperformed.

KT (030200.KS), South Korea's dominant fixed-line operator and No.2 mobile carrier, dipped 0.51 percent and SK Telecom (017670.KS), the country's No.2 mobile phone operator, inched down 0.29 percent.

Tobacco monopoly KT&G (033780.KS) was 0.44 percent lower.

(Reporting by Jungyoun Park; Editing by Jonathan Hopfner) ((jungyoun.park@thomsonreuters.com; +82 2 3704 5643; Reuters Messaging: jungyoun.park.reuters.com@reuters.net)) ((If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com)) ($1=1156.8 Won)