Seoul shares edge up to fresh 3-week high as yen stabilizes

* Trade thin as options expire

* Steelmakers bullish for 2nd session on improved outlook

By Joyce Lee

SEOUL, Feb 14 (Reuters) - South Korean shares edged up on Thursday to a fresh three-week high in thin trade, as investors awaited a G20 meeting later this week that is expected to set the tone for future currency moves.

The Korea Composite Stock Price Index (KOSPI) closed up 0.2 percent at 1,979.61 points, extending gains after a 1.6 percent jump in the previous session.

"The recent break-neck pace of the yen's weakness is undergoing an adjustment as more concerns are voiced about the yen's decline, supporting the main board," said Han Beom-ho, an analyst at Shinhan Investment Corp.

The yen stabilized against the dollar on Thursday, after the Bank of Japan kept monetary policy steady.

South Korea's central bank also held interest rates steady on Thursday, as expected, but warned that Japan's expansionary monetary policy could impact future growth as a weak yen could undercut Korean exporters' competitiveness.

The yen's decline was a key factor in the KOSPI dropping 3.4 percent during January, compared to Asian peers' 2.5 percent gain, as South Korean blue-chip exporters were seen hobbled versus Japanese competitors in overseas markets.

Trade volume was thin as KOSPI 200 index and individual stock options expired at end of session, and investors avoided building positions. Some 3.35 trillion Korean won worth of stocks changed hands, at just 83 percent of the 20-session average of daily volume.

Steelmakers were in favour for a second straight session, with POSCO up 1 percent while Dongbu Steel Co Ltd rose 4.3 percent.

"Steelmakers' profitability is seen improving from the second quarter as unfavourable factors such as the latest cut in automotive steel sheet pricing have already come to pass," said Kim Kang-oh, an analyst at Hanwha securities.

Among daily movers, shares in Korea Gas Corp rose 2.5 percent on hopes it would benefit from U.S. President Barack Obama's clean energy policies outlined in his latest State of the Union address.

Local institutional and foreign investors bought a net 120.4 billion won ($110.8 million) worth of KOSPI shares, buttressing the main board.

Gainers outnumbered decliners 482 to 306.

The KOSPI 200 benchmark of core stocks closed up 0.2 percent, while the junior KOSDAQ rose 0.9 percent.

Move on day +0.2 percent

12-month high 2,057.28 14 March 2012

12-month low 1,769.31 25 July 2012

Change on yr -2.5 percent

All-time high 2,231.47 27 April 2011

All-time low 93.10 6 January 1981 ($1 = 1086.9500 Korean won) (Editing by Eric Meijer)