* Foreign buying, banks send KOSPI higher
* Daewoo Shipbuilding falls on profitability worries
* Hitejinro, Halla rally on MSCI index addition
SEOUL, May 16 (Reuters) - Seoul shares rose on Thursday aided by foreign investor buying following rallies on Wall Street, with solid gains in banks boosting sentiment, but falls in shipyards including Daewoo Shipbuilding & Marine Engineering capped gains.
"The market is turning around as optimism is growing that efforts by global governments including South Korea's to stimulate the economy will pay off," said Lee Jae-mahn, a market analyst at Tong Yang Securities.
Signs the yen's weakness may slow were also helping to support Seoul's share market, analysts said.
The dollar hit a 4-1/2-year high earlier on Wednesday, but its gains were pared during the North American session on falling U.S. Treasury bond yields. Yields move inversely to price.
The Korea Composite Stock Price Index was up 0.64 percent at 1,983.97 points at 0132 GMT.
Foreign investors were buyers of a net 94.6 billion won worth of stocks.
Banks led gains, as Shinhan Financial Group rose 3.8 percent and Hana Financial Group advanced 3.2 percent.
Exporters also traded firmer, with Hyundai Motor gaining 1 percent and LG Display rising 1.7 percent.
But Daewoo Shipbuilding & Marine Engineering tumbled after the South Korean shipbuilder said late on Wednesday its first quarter operating profit fell more than 50 percent from a year ago.
"Profits came out poorly despite relatively smaller allowance for bad debts," pointing to falling profitability of its ship orders, said Han Young-soo, an analyst at Samsung Securities.
Daewoo Shipbuilding shares were the most-heavily traded share on the main KOSPI.
Other shipyards also weakened, with Hyundai Heavy Industries down 0.2 percent and STX Offshore & Shipbuilding falling 1.5 percent.
Shares in Hitejinro Co Ltd and Halla Visteon rallied after MSCI Inc added the firms to its South Korea index.
Hitejinro, a brewery and liquor maker, and Halla Visteon, an auto parts maker, advanced 5.7 percent and 3.2 percent, respectively.
But Mando, which was dropped from the index, fell 2.6 percent.
The KOSPI 200 benchmark of core stocks was up 0.8 percent, while the junior KOSDAQ edged 0.16 percent higher. (Reporting by Jungyoun Park; Editing by Jacqueline Wong)