UPDATE 2-S.Korea warns of more capital controls as foreign debt jumps

* Will study new ways to curb short-term debt - deputy fin min

* March short-term foreign borrowing up most in 27 mths -c.bank

* Won has appreciated nearly 6 pct so far this year (Recasts with deputy finance minister's remarks)

By Kim Yeonhee and Lee Shin-hyung

SEOUL, April 28 (Reuters) - South Korea warned on Thursday it may impose fresh capital controls after data showed short-term foreign borrowing jumped the most in 27 months in March amid expectations for further gains in the won currency.

Highlighting growing signs of strain in Asia's fourth-largest economy, the central bank also called for more aggressive efforts to control surging household debt, which is already among the highest in the world.

"The government will study whether there are additional steps to take (to discourage short-term borrowing abroad) on top of the three policy steps already introduced," Deputy Finance Minister Choi Jong-ku Choi told Reuters after a briefing, during which he expressed his concern about speculative bets on the won .

South Korean authorities have allowed the won to rise nearly 6 percent against the U.S. dollar so far this year as they look to temper imported inflation, but have recently expressed reservations that speculation on additional won gains could potentially destabilise the economy.

Central bank data released earlier in the day showed short-term foreign borrowing, mostly by banks, jumped by a net $6.72 billion in March, the third monthly rise in a row and the biggest gain since August 2008.

Banks have been borrowing to fund forward foreign exchange deals with local exporters, who are almost single-handedly driving the country's economic growth in the face of sluggish domestic demand. [ID:nL3E7FQ4GO]

High levels of short-term foreign debt and fears of a jump in non-performing loans, particularly in the ailing construction industry, have rekindled memories of the 1997/98 Asian financial crisis, when the country barely averted insolvency thanks to an international bailout.

Choi said dollar/won sales in non-deliverable forward (NDF) trading were growing sharply this year and that "a large part" of the activity appeared to be driven by speculative bets on further won appreciation.

"There are various purposes of NDF trading such as hedging by share investors, but a large part of the trades done recently are based on speculative purposes," he said during the briefing, arranged just a few hours in advance.

The Bank of Korea also stressed the dangers of excessive cross-border capital flows in its biannual report released on THursday, in particular citing the risk of any massive withdrawn of foreign investor funds from the country's stock and bond markets.

It called for more efforts to contain such capital flows, but did not make any specific recommendations.

The central bank also warned swelling household debt posted growing credit risks for the economy.

Household debt in South Korea rose 8.9 percent to 937.3 trillion won ($869.8 billion) at the end of last year, versus an 7.3 percent increase in 2009. Its ratio to disposable income stood at 146 percent, the highest in the OECD after Britain.

"To control the excessive increase in household debt, it is necessary that expectations of housing price increases are suppressed using diverse policy measures," the Bank of Korea said in its report.

Despite inflation racing to a 29-month high in March, some market watchers believe concerns about rising household debt have been a key factor in the central bank's cautious approach to raising interest rates this year, along with concerns that higher rates could stifle broader economic growth.

South Korea's Financial Supervisory Services has asked five local consumer firms to draw up plans to reduce lending to households, a spokesperson told Reuters on Wednesday.

ONE-WAY WON?

As concerns about speculative inflows grew in recent months, South Korea has imposed restrictions on the amount of foreign exchange derivatives positions banks can hold, revived taxes on interest income from foreign investment in government bonds and instituted a levy on foreign debt held by banks.

This week, the central bank and the financial regulatory agency launched a joint inspection of four banks -- including two foreign bank branches -- over currency derivaties trading.

Choi said at the briefing that the ceilings on holdings of such derivatives "may be reduced" depending on the findings from the inspection. Multiple government sources suggested earlier the ceilings would be reduced by one-fifth.

The won's rise has gathered pace since March this year, adding urgency to the government's risk-reduction efforts.

The currency rose a mere 2.6 percent against the dollar for the whole of last year despite robust exports that led the sharp 6.2 percent growth in Asia's fourth-largest economy -- the fastest in eight years.

It jumped 6 percent in just six weeks to hit a 32-month high of 1,071.1 per dollar on Thursday as the U.S. Federal Reserve's reassurance of easy monetary policy dented the dollar and boosted demand for higher-yieldingb emerging-market assets. (Writing by Yoo Choonsik; Editing by Jonathan Hopfner)