S.Korea president upbeat on economy as c.bank eyed

SEOUL May 17 (Reuters) - South Korea's president on Monday issued his most optimistic comments on the economy since the global financial crisis began, and days after the central bank hinted it would start raising interest rates in a few months.

South Korea is among only a few leading economies to post growth last year and is tipped to grow faster than its rivals this year, but the government has so far resisted calls for shifting interest rate policy toward tightening.

"In the first quarter, the private sector's domestic demand including consumption and investment has recovered almost the level before the (global) financial crisis," President Lee Myung-bak said in a prepared radio speech to the country.

"At last the green light is on in the real economy," he added, without mentioning any specific area of weakness within the local economy, although citing the euro zone's instability as a reason for the country to stay vigilant.

The central bank, the Bank of Korea, said last week the recovery in Asia's fourth-largest economy has become more pronounced and strengthening domestic demand would contribute to pushing consumer inflation higher.

Bond prices tumbled afterwards as traders and analysts took these comments as suggesting the central bank would start raising the policy interest rate, kept at a record-low 2 percent for over a year, during the next quarter. [ID:nTOE64B017]

Analysts have said the Bank of Korea had already missed the appropriate timing to shift its policy toward tightening and the country's most influential government think-tank on Sunday urged the central bank to raise interest rates. [ID:nTOE64E00B]

The government expects the economy to grow 5 percent this year after a 0.2 percent gain last year, but many prominent agencies -- including the central bank and the government think-tank -- see faster growth.

Lee's upbeat comments on the economy also came just two weeks before the election on June 2 to select heads of 16 provincial governments and hundreds of provincial council members, widely seen to be a mid-term assessment by voters on Lee's presidency.

The former chief executive of a leading construction company and mayor of the capital Seoul, Lee took power in 2008 for a single five-year term by promising to sharply boost the country's economic growth.

The ruling camp boasts the government has overcome the financial crisis quickly and raised the country's position in the global community, whereas the opposition parties criticise Lee's hard-line policy toward communist North Korea.

South Korea will host the summit meeting of the Group of 20 leading economies in November and the nuclear summit in 2012. (Editing by Jerry Norton)