Seoul shares gain; muted reaction to rate decision

* KOSPI rises, poised to advance for 5th session

* KEB rallies on Lone Star stake sale plan news

(Updates to mid-morning)

By Jungyoun Park

SEOUL, March 11 (Reuters) - Seoul shares advanced on Thursday with gains led by Korea Exchange Bank (KEB) on news Lone Star would resume selling its stake in the firm, while reaction to the central bank's decision to keep rates on hold was muted.

The Korea Composite Stock Price Index .KS11 (KOSPI) was up 0.22 percent at 1,665.82 points as of 0159 GMT, poised gain for a fifth consecutive session.

"We see the index rising to the psychologically significant 1,700 point level in the longer-term, helped in particular by expectations of a stronger Chinese yuan, which has been boosting regional currencies including the won KRW=," said Song Kyung-keun, a market analyst at Dongbu Securities.

"The rate decision held no surprises that could impact teh market. Options expiry falling today will not likely be negative for momentum either," Song said.

Song said investors were seen favoring domestic consumption-linked issues in the retail and food and beverage sectors.

Shares in Korea Exchange Bank (KEB) (004940.KS) jumped 4.46 percent after news U.S. private equity fund Lone Star [LS.UL] planned to resume selling its 51 percent stake in KEB, worth $3.9 billion at current market prices. [ID:nSEL003015]

"The stake sale expectations are boosting KEB stocks but I think the impact will be relatively short-lived," said Kim In, an analyst at Eugene Investment & Securities.

"The sale will undoubtedly be an arduous process, and who will actually manage to buy the stake is still unclear. KB Financial Group (105560.KS) would have been the most suitable candidate, but with its current top management vacancy, it does not seem likely," Kim added.

The chairman-elect of KB Financial Group resigned from the nomination late last year.[ID:nTOE5BU03K]

POSCO (005490.KS) was flat after the world's No.4 steelmaker said late on Wednesday it would raise major steel product prices in the second quarter of this year by at least 20 percent.[ID:nTOE6290AH]

"There had been expectations of near-term price hike, but also a lot of doubts. The comments clear these uncertainties and are positive to POSCO shares," said Chris Kim, an analyst at Shinhan Investment Corporation.

POSCO also said its talks with Thainox Stainless Pcl INOX.BK, an acquiring Southeast Asia's largest stainless steel producer were currently in "unfavourable condition." [ID:nTOE6290A2]

"Thainox is a relatively small firm and the success or failure of the acquisition will have a limited impact on POSCO shares," Kim added.

Korean Air Line (003490.KS) and Asiana Airlines (020560.KS) showed a muted reaction after South Korea's Fair Trade Commission (FTC) imposed penalty fees on the carriers for obstructing the entrance of low-budget airlines into the sector.

The FTC levied fines of about 10.4 billion won ($9.21 million) on Korean Air and 640 million won on Asiana Airlines.

"The fees are pretty small, and these kinds of impositions by FTC are fairly common, so the impact on shares is limited," said Lee Kie-myung, an analyst at Hyundai Securities.

Shares in Korean Air Line were up 0.32 percent and Asiana Airlines gained 2.89 percent.

(Reporting by Jungyoun Park; Editing by Jonathan Hopfner)