UPDATE 3-Firm S.Korea data puts the domestic back into GDP
* Quarterly growth slightly better than expected
* Domestic demand helps offset persistent export weakness
* Q3 GDP +1.1 pct q/q (+1.0 pct forecast, +1.1 pct in Q2
* Q3 GDP +3.3 pct y/y (+3.2 pct forecast, +2.3 pct in Q2
* Rising won to test President Park on policy promises (Adds analyst quote)
By Christine Kim and Choonsik Yoo
SEOUL, Oct 25 (Reuters) - Domestic demand led South Korea's third-quarter economic growth for the first time in more than two years, supporting the government's policy of shifting away from volatile exports.
Gross domestic product growth of 1.1 percent reported on Friday underlined a slow but broadening recovery in Asia's fourth-largest economy. Contributions from domestic sources offset the drag from weak global demand that is weighing on export-dependant economies across the region.
Analysts said the data vindicated the policies of President Park Guen-Hye, who promised during her election campaign last year to shift policy away from keeping the won currency cheap in order to support exporters.
Neighbouring China is attempting a similar tricky transformation, moving from heavy reliance on investment and exports to a growth model driven more by local consumption.
"Supporting the development of domestically-orientated sectors will help Korea achieve sustainable growth and make the economy become more resilient to downturns in external demand over the medium term," said Ronald Man, economist at HSBC in Hong Kong.
"The strong third quarter GDP print will reduce pressure on policymakers in Seoul to deliver additional stimulus in the absence of a negative external shock."
The economy expanded by a seasonally adjusted 1.1 percent in the third quarter from the second quarter, slightly faster than the 1.0 percent forecast by analysts in a Reuters poll. It held steady from a matching 1.1 percent rise in the second quarter, when GDP growth hit its highest since early 2011.
Private consumption grew a seasonally adjusted 1.1 percent on a quarterly basis in the July-September period; government spending edged up 0.1 percent and capital investment gained 1.2 percent, the Bank of Korea's official estimates showed.
From a year earlier, the economy expanded by 3.3 percent in the third quarter, also slightly faster than expected, and up from 2.3 percent in the second quarter.
It was the quickest annual growth since a 3.4 percent gain in the fourth quarter of 2011.
The central bank expects the economy to growth 2.8 percent this year from 2.0 percent last year and go on to reach 3.8 percent next year.
Still, the outlook for the fourth quarter appears cloudy. Sales growth at the country's top department stores eased in September and South Korean households are saddled with the highest debt levels in Asia.
HSBC's Man forecasts quarterly growth in the last three months of the year will slow to around 0.7 percent.
PRESIDENT CALLS FOR MORE BALANCED ECONOMY
Since taking office eight months ago, President Park has repeatedly said economic policy would be focused more on helping domestic service businesses to become more vibrant and profitable.
A more upbeat economic outlook combined with the country's healthy external positions has been lifting the won -- prompting authorities to intervene for a second consecutive day on Friday to smooth the won's appreciation, traders said.
Finance Minister Hyun Oh-seok and Bank of Korea Governor Kim Choong-soo said separately this week the authorities were aiming to smooth the pace of the won's appreciation, supporting previous remarks by government officials that they would not try to reverse the currency's direction.
The won ended almost unchanged on Friday on suspected official intervention and as foreigners turned net sellers of local shares after nearly two months of uninterrupted buying. It gained 6.8 percent against the dollar in the third quarter, the most in three years. (Additional reporting by Se Young Lee; Editing by Eric Meijer)
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