UPDATE 1-S.Korea c.bank keeps rates steady on firming recovery

Wed Feb 12, 2014 8:35pm EST

(Adds background details, analyst comment)

* Base rate kept at 2.50 pct (Reuters poll: 2.50 pct)

* Bank of Korea seen raising rates from late 2014

By Christine Kim and Jungmin Jang

SEOUL, Feb 13 (Reuters) - South Korea's central bank stood pat for a ninth straight month on Thursday, as expected, and a firming economic recovery supported the consensus market view that the bank would begin raising interest rates later this year.

The Bank of Korea's monetary policy committee held its base rate KROCRT=ECI steady at 2.50 percent, a media official said without elaborating. Governor Kim Choong-soo is due to hold a news conference from 11:20 a.m. (0220 GMT).

All 23 analysts surveyed in a Reuters poll before the decision said the Bank of Korea would probably leave rates unchanged in February and until late 2014.

"South Korea's economy will show strengthening momentum as it goes into the second half of the year, following (recovery in) the advanced countries," said Kong Dong-rak, a fixed income analyst at Hanhwa Securities in Seoul.

South Korea's quarterly economic growth eased to a seasonally adjusted 0.9 percent in the final three months of 2013 from 1.1 percent in both the second and third quarters, the central bank estimated late last month.

While a contraction in construction investment was a drag on fourth quarter growth, capital investment during the period grew a seasonally adjusted 6.4 percent from the third quarter, setting the fastest gain in almost two years.

The Bank of Korea is expected to begin raising interest rates as early as the third quarter of this year, according to the Reuters poll, when inflation will likely heat up on the back of sustained economic growth.

Inflation in January stood at 1.1 percent on an annual basis, far below the central bank's target band of 2.5 percent to 3.5 percent, but the central bank expects inflation to reach around 3 percent later this year.

The central bank will also keep an eye on how China's economy fares and how the global markets react to the Fed's continued pull-back of its stimulus programme.

A further slowdown in China could deal a heavy blow to South Korea, which sends about one-quarter of total exports to the giant neighbour. (Editing by Choonsik Yoo and Eric Meijer)

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