Seoul shares fall, surprise c.bank rate cut stokes underlying growth worries

Wed Jul 11, 2012 11:05pm EDT

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    * Brokerages rally on rate cut, broader market declines

    By Joonhee Yu
    SEOUL, July 12 (Reuters) - Seoul shares edged lower on
Thursday morning after a surprise interest rate cut by the South
Korean central bank fed overhanging worries about the stresses
of the flagging global economy.
    The Bank of Korea lowered its base rate for the first time
in more than three years on Thursday, contrary to expectations,
joining the recent global wave of policy easing. 
    But the rate cut also fuelled concern that the global
economic downturn was taking a heavy toll on Asia's
fourth-largest economy, with the market already nervous ahead of
Friday's release of Chinese GDP growth data, expected to be the
lowest in three years.
    "We have seen fundamental warning signs accumulate to a
point where even a series of rate cuts by global central banks
have failed to shore up confidence, and today's move only has
investors asking questions about how bad the economic picture
must be to warrant such a surprise decision," said Kim
Byung-yeon, an analyst at Mirae Asset Securities.
    The Korea Composite Stock Price Index (KOSPI) was down 0.7
percent at 1,813.54 points as of 0225 GMT, which would represent
a five-week closing low if the market finishes at this level,
reversing slim gains seen immediately after the rate decision.
    Investors were left further disappointed after the minutes
from the U.S. Federal Reserve's June meeting suggested the
economic recovery might need to weaken for a consensus to build
for the Fed to engage in a third-round of bond-buying to support
the economy. 
    "Investors will be disappointed by the likelihood of no
decisive, growth-stimulating measures on the near horizon, while
worries of a slowing economy continue to nag," said Park
Suk-hyun, an analyst at KTB Securities. 
    Brokerages bucked broader downward trend as buyers relished
the prospect of increased liquidity from the central bank's rate
cut, with Daewoo Securities Co Ltd up 1.9 percent
and Woori Investment & Securities Co Ltd rising 2.2
percent.
    The broader market was overwhelmingly bearish, with 19 out
of the 20 industry group sub-indexes tracked by the Korea
Exchange languishing in the red.
    The benchmark KOSPI is facing a key test of support near the
psychologically important chart level of 1,800 points.
    "Depending on the scale of the impact from China's GDP data,
the 1,800 point threshold could give way in the short-term,
before recuperating as momentum from coordinated global policy
easing picks up in the third quarter," said Lim Soo-kyun, an
analyst at Samsung Securities.

 (Editing by Chris Lewis)
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