Seoul shares hit lowest close in 10 months after plunge

* KOSPI falls as much as 7.4 pct during trade

* KOSPI slumps 14 pct over five sessions -Korea Exchange

* Trade temporarily suspended for the first time this year (Updates to close)

SEOUL, Aug 8 (Reuters) - Seoul shares recovered slightly from an over 7 percent nose-dive on Monday but still posted their lowest close in 10 months, as retail investors stepped up selling on the U.S. credit rating downgrade.

The Korea Composite Stock Price Index (KOSPI) finished 3.82 percent lower at 1,869.45 points after losing as much as 7.4 percent, its worst daily percentage drop since late October 2008. The closing level was the lowest since October 19 last year.

The KOSPI has tumbled 14 percent over the past five sessions, wiping out 170.5 trillion won ($159.7 billion) in market value, the Korea Exchange said in a statement.

"The KOSPI cut early losses later in the day on perceptions that it reflected the U.S. ratings downgrade too much. Foreign investors cut selling and institutional investors lent support," Oh Jae-yeol, an analyst at IBK Securities, said.

"The market has reacted sensitively to the downgrade, and there should be a limited downside. But a sustained recovery is unlikely because uncertainty about the global economy remains," he added.

Foreign investors extended their selling streak to a fifth consecutive session, but cut net selling by around one-fifth from the previous session, to 77 billion won.

Institutional investors bought a net 640 billion won in shares, while retail investors sold a net 732 billion won shares.

The sharp falls in the KOSPI prompted the Seoul bourse operator to temporarily suspend programme trading on the main exchange.

Earlier in the day, the bourse suspended all trade on the junior Kosdaq market for 20 minutes.

This was the first time it made such moves this year, the KRX said in the statement.

The sell-off came even as the Group of Seven leading industrial nations and the European Central Bank pledged to act to stem a debt crisis and to provide liquidity as financial markets across the world fell.

Brokerages and shipbuilders were among the worst performers, with STX Offshore & Shipbuilding tumbling 10.95 percent and Eugene Investment & Securities diving 14.32 percent.

KOSPI 200 Sept futures KSc1 fell 9.75 points to 241.75 and the KOSPI 200 spot index slid 9.45 points to 242.45. The junior Kosdaq market finished down 6.63 percent at 462.69.

Move on day -3.82 percent

12-month high 2,231.47 27 April 2011

12-month low 1,716.86 16 August 2010

Change on yr -8.85 percent

All-time high 2,231.47 27 April 2011

All-time low 93.10 6 January 1981 ($1 = 1067.400 Korean Won) (Additional reporting by Ju-min Park; Editing by Jonathan Hopfner)