Seoul shares fall; brokers up on regulation change

* KOSPI falls 0.46 pct

* Brokerages up on partial lifting of short-selling ban

* Cellphone makers down after weak Q1 numbers, outlook

(Updates to mid-morning)

By Jungyoun Park

SEOUL, May 21 (Reuters) - Seoul shares retreated on Thursday
after overnight losses on Wall Street, with bearish comments on
the economy by the U.S. Fed weighing on sentiment, but brokerages
outperformed on the partial lifting of a short-selling ban.

The Korea Composite Stock Price Index (KOSPI) was
down 0.46 percent to 1,429.05 points as of 0158 GMT.

"The index has risen significantly since early March, and
falls in Wall Street shares overnight and the bearish comments on
the U.S. economy by the Federal Reserve are weighing further on
the market," said Hong Soon-pyo, a market analyst at Daishin
Securities.

The U.S. Fed cut its 2009 forecast for gross domestic product
and raised its outlook for unemployment. [ID:nN20492043]

The main KOSPI has risen more than 40 percent since early
March.

News late on Wednesday that South Korea would lift a
temporary short-selling ban next month, but only for
non-financial stocks, boosted brokerage issues. [ID:nSP150568]

"The removal of the ban will eventually lead to higher market
turnover...[it] should improve earnings momentum for brokers,"
Merrill Lynch said in ts report dated May 20.

Shares in Samsung Securities (016360.KS) gained 3.3 percent
and Daewoo Securities (006800.KS) was up 1.95 percent.

But cellphone makers including LG Electronics (066570.KS)
came under pressure after research Gartner said late on Tuesday
that global cellphone sales fell 8.6 percent in the first quarter
of 2009 as consumers reined in spending. [ID:nLK733707]

A Reuters poll also forecast handset vendors' sales in the
April-June quarter would drop 14.5 percent from a year ago.
[ID:nLK616446]

LG Elec, the world's No.3 handset maker, declined 3.07
percent and Samsung Elec (005930.KS), the world's No.2, lost 2.08
percent.

But shares in Hyundai Motor (005380.KS) outperformed, dipping
0.15 percent, after Citigroup upgraded the company to "buy" from
"hold" and raised its target price by 35.6 percent to 80,000 won.

The upgrade was "mainly attributable to emerging signs of
domestic demand recovery, new volume models launch in second
half, 2009 (and) robust sales performance in China market which
should offset tailing-off momentum in the United States," Citi
said in its report dated Wednesday.

Shares in Samsung Heavy Industries (010140.KS) also
outperformed after the shipbuilder announced on Wednesday plans
to invest in wind power development.

The shipbuilder said it plans to invest 600 billion won
($481.5 million) and achieve 3 trillion won in sales in its wind
power business by 2015.

"It's good that the company is taking actions to diversify
its business portfolio," said Jang Keun-ho, an analyst at Hana
Daetoo Securities.

"But how their new business ambition will translate into
profits will have to be seen," Jang added.

Samsung Heavy was up 0.49 percent, compared with the
transportation equipment sub-index's .KS42 1.25 percent fall.

(Editing by Jonathan Hopfner)