Seoul shares fall; commods decline, Samsung Heavy up

* KOSPI falls 0.68 pct, MSCI news weighs

* Samsung Heavy rises on Shell order hopes

* Commodities issues fall after gains

(Updates to mid-morning)

By Jungyoun Park

SEOUL, June 16 (Reuters) - Seoul shares fell on Tuesday with
commodities issues falling after their latest streak of gains,
while news index compiler MSCI's decision not to upgrade South
Korea to developed market status in its annual review added
pressure.

The Korea Composite Stock Price Index (KOSPI) was
down 0.68 percent at 1,402.86 points as of 0107 GMT.

MSCI announced on Monday it was keeping South Korea, which
many analysts expected to be recategorised as a developed market,
in its emerging markets group. [ID:nN15222885]

South Korea would need to make significant progress before an
upgrade, MSCI said.

"Certainly the news is not positive to markets, but there had
been talk prior to the official announcement by the MSCI that
South Korea may not make the developed market group this time,"
said IBK Securities market analyst Lee Young.

"Also, stocks had already reflected U.S. market falls in the
previous session, so today's losses are relatively modest.
Foreign trading patterns will be eyed as they turned net sellers
after a long streak of buying," Lee added.

Foreign investors were netsellers of 53.8 billion won ($42.64
million) worth of shares, offloading stocks for a second-straight
session after having snapped six consecutive buying session on
Monday.

Commodities issues including steelmakers retreated after
their latest gains, with POSCO (005490.KS), the world's No.4
steelmaker, losing 1.86 percent, while Hyundai Steel (004020.KS)
fell 2.1 percent.

Banks fell, with KB Financial Group (105560.KS) shedding 0.71
percent after a brokerage rating and earnings downgrade.

UBS has cut its rating for South Korea's KB Financial Group
to "neutral" from "buy", and lowered its 2009 and 2010 earnings
estimates for the parent company of Kookmin Bank, citing
potential capital raising. [ID:nSEO50105]

But a local media report that Royal Dutch Shell (RDSa.L) had
picked Samsung Heavy Industries (010140.KS) as a preferred bidder
for the design of an estimated 5 trillion won ($3.96 billion)
liquified natural gas (LNG) floating and production facility
(FPSO) boosted its shares.

A Samsung Heavy spokesman denied the report and said the
results would not be known until July.

Shares in Samsung Heavy climbed 1.32 percent.

Samsung Electronics (005930.KS) fell 1.21 percent, weighed
down by overnight falls in the U.S. semiconductor index .SOXX,
and following news that Japanese electronics maker Sharp Corp
(6753.T) had won a fight with Samsung Electronics over patented
technology for liquid crystal displays. [ID:nN15240203]

The world's second-biggest maker of mobile phones also
launched a new touch-screen model on Monday, while expressing
confidence it would expand its global market share despite the
economic downturn. [ID:nSEO315372]

Hynix Semicondcutor (000660.KS), the world's No.2 memory
chipmaker, fell 0.75 percent.

Retail issues outperformed after data showed sales at top
South Korean department stores in May rose for a third
consecutive month, adding to a recent string of data indicating
that the economy had bottomed out. [ID:nSEO321815]

Lotte Shopping (023530.KS) slipped 0.2 percent, and Shinsegae
(004170.KS) rose 0.11 percent.
(Editing by Chris Lewis)