S.Korea shares flat; banks/LG Electronics bounce

SEOUL, Dec 7 (Reuters) - Seoul shares trimed early gains to stay flat on Friday, with foreign investor buying into banks and LG Electronics countered by local investor selling on worries about slow flows into local equity funds.

Banks and exporters have taken a beating on caution about the fallout of the global credit market problems and their quarterly earnings, which fund managers said had sent their valuations low enough to buy up.

But shipbuilders and chemical stocks declined, pricing in the potential impact of China's shift to a tight policy on exports to their top overseas market, while telecom stocks such as SK Telecom (017670.KS) yielded to profit-taking by local investors. "We had better approach the market with the perception that it has no upside or downside momentum for the time being," said Kim Eun-soo, Chief Investment Officer of PCA Investment Trust Management.

"That situation will last towards the year end when companies need more cash, and as domestic financial institutions are not in a good condition for fund raising."

The benchmark Korea Composite Stock Price Index was up 0.03 percent at 1,953.75 points at 0201 GMT. It opened at 1,969.49.

The Bank of Korea's decision to keep its benchmark interest rate on hold for a fourth consecutive month had limited impact on the stock market as it had been widely expected.

Among financial titles, Hana Financial Group (086790.KS) climbed 4.18 percent to 47,350 won, with the banking subindex .KS51 up 2.46 percent.

LG Electronics Inc (066570.KS), the world's No. 5 handset maker, rose 2.83 percent to 109,000 won, after its rival Motorola Inc (MOT.N) backed its forecast for fourth-quarter earnings and revenue growth on Thursday. [ID:nN06226760]

Shares of Hynix Semiconductor Inc (000660.KS), the world's second-largest memory chip maker, also were up 2.97 percent at 27,750 won, boosted by rising computer chip prices.

On the strong upside, Daehan Fire & Marine Insurance (000400.KS) soared by its daily ceiling of 15 percent to 20,100 won. A consortium led by South Korea's Lotte Hotel has signed an agreement to buy a majority of Daehan Fire, in a deal reportedly worth about $400 million.[ID:nSEO80904]

Foreign investors bought a net 93 billion won worth of shares by 0200 GMT, whereas local institutions sold a net 26 billion won. Retail investors sold a net 76 billion won worth of shares.

Reversing the trend, the world's top shipbuilder Hyundai Heavy Industries (009540.KS) fell 1.3 percent to 456,000 won.

SK Telecom, the country's top mobile phone operator, lost 2.44 percent to 259,500 won, capping its recent winning streak on its agreed purchase of a controlling stake in hanarotelecom (033630.KQ) for $1.2 billion.

Mirae Asset Securities (037620.KS) also declined 2.33 percent to 168,000 after it said on Friday that additional 1.4 million shares will be listed on Monday after being converted from bonds.

(Reporting by Kim Yeon-hee; editing by Jonathan Thatcher)