* Foreign buying, banks send KOSPI higher
* Daewoo Shipbuilding falls on profitability worries
* Hitejinro, Halla rally on MSCI index addition
SEOUL, May 16 (Reuters) - South Korean shares rose on Thursday with banks and exporters the main gainers as the pace of yen depreciation slowed, easing some concerns about the competitiveness of South Korean exports.
But gains were capped as shipyards fell after Daewoo Shipbuilding & Marine Engineering reported weak first quarter earnings.
The Korea Composite Stock Price Index finished up 0.79 percent at 1,986.81 points. Foreign investors were buyers of a net 294.3 billion won worth of stocks.
The dollar pulled away from a 4-1/2 year high against the yen Thursday after disappointing U.S. industrial data caused Treasury prices to rise for the first time in a week.
"The market is relived by decelerating depreciation of yen and it has prompted foreign investors' return," said Kim Young-june, a market analyst at SK Securities.
Banks led the gains with Shinhan Financial Group rising 3.2 percent and Hana Financial Group up 1.5 percent.
Exporters also traded firmer, with Hyundai Motor gaining 1.6 percent and LG Display rising 2.5 percent.
Shares in NHN Corp, an internet portal operator, jumped 7.5 percent after hitting an all-time high, as success of its "Line" smartphone mobile messenger application fueled hopes it may contribute to earnings in the future, analysts said.
Line is expected to attract 400 million users worldwide this year with user count seen rising in Japan, Europe and South America, said Choi Hun, an analyst at KB Investment & Securities.
Line's current user count is estimated to be around 150 million, according to analysts.
"Expectation is that new profitable business opportunity may arise from this mobile messenger platform," said Kong Young-kyu, an analyst at Shinhan Investment Corp.
Morgan Stanley and Credit Suisse were top buyers of the stock, acting on behalf of investors.
But Daewoo Shipbuilding & Marine Engineering tumbled 10.5 percent to its lowest close in about 2 weeks, 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," 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 Samsung Heavy Industries down 1.2 percent and STX Offshore & Shipbuilding falling 1.9 percent.
Shares in Hitejinro Co Ltd and Halla Visteon Climate Control Corp rallied after MSCI Inc added the firms to its South Korea index.
Hitejinro, a brewery and liquor maker, and Halla Visteon Climate Control, an auto parts maker, advanced 6 percent and 3.2 percent, respectively.
But Mando, which was dropped from the index, fell 3.1 percent.
Gainers outnumbered decliners 448 to 370.
The KOSPI 200 benchmark of core stocks closed up 0.9 percent, while the junior KOSDAQ edged 0.07 percent higher.
Move on day +0.79 percent
12-month high 2,042.48 3 January 2013
12-month low 1,758.99 25 July 2012
Change on yr -0.51 percent
All-time high 2,231.47 27 April 2011
All-time low 93.10 6 January 1981 (Reporting by Jungyoun Park; Editing by Sanjeev Miglani)