Seoul shares down in volatile trade; banks fall

* KOSPI retreats slightly, down 0.20 pct

* KB Financial falls on KEB purchase speculation

* POSCO, Samsung F&M advance on positive brokerage notes

(Updates to mid-morning)

By Jungyoun Park

SEOUL, May 29 (Reuters) - Seoul shares fell in volatile trade
on Friday, with falls in banks weighing on the index, but POSCO
(005490.KS) and Samsung Fire & Marine (000810.KS) outperformed
helped by positive brokerage comments.

The Korea Composite Stock Price Index (KOSPI) was
down 0.20 percent at 1,389.33 as of 0146 GMT.

"Volatility continues to rule the market, with North Korea
worries still weighing. But continued buying by foreign investors
comes as a positive sign," said Lee Sun-yeop, a market analyst at
Goodmorning Shinhan Securities.

South Korea and the United States raised the military alert
level for the peninsula on Thursday after the communist North
warned that the truce ending the Korean War was dead and it was
ready to attack. [ID:nSEO333114]

Foreign investors were buyers of a net 132 billion won ($105
million), headed for an eleventh consecutive buying session.

Meanwhile, there were also concerns about possible social
unrest with the funeral of former South Korean President Roh
Moo-hyun, who committed suicide last week, taking place on
Friday.

"If there is widespread violence and protests by civilians,
or some sort of political clash afterwards, sentiment will be
hurt," Lee added.

Banks fell, led by KB Financial Group (105560.KS), on
mounting market speculation that the holding company of Kookmin
Bank, South Korea's largest commercial lender, may issue new
shares to raise capital in preparation for a bid for smaller
rival Korea Exchange Bank (KEB) (004940.KS).

JPMorgan said in a note that KB Financial's investment limit
was 2 trillion won ($1.6 billion) as of the first quarter,
falling short of the current market value of Lone Star's stake in
KEB of 3 trillion won. [ID:SEO19889]

"If KB Financial Group decides to raise capital by issuing
new shares ... it would be a rights offering to existing
shareholders," it said. "This may result in underperformance of
KB Financial Group's share price against the market."

KB Financial was down 3.13 percent, while KEB was up 3.67
percent.

Chemicals giant SKC (011790.KS) and SK Securities (001510.KS)
both outperformed after SKC said in a filing late on Thursday it
sold a 7.6 pct stake in SK Securities (001510.KS) for 44.6
billion won to improve its balance sheet and secure money for
investment.

SKC was up 2.95 percent. SK Securities rose 4.62 percent.

But Hyundai Steel (004020.KS) was down 1.95 percent after
South Korea's second-largest steelmaker on Friday said it would
cut prices of its steel products by up to 20 percent, following
similar moves by domestic rivals. [ID:nSEO17808]

POSCO (005490.KS) outperformed, rising 0.86 percent, after a
Citigroup report maintained a "buy" on the world's No.4
steelmaker and lifted its 2009 net profit estimate by 4 percent.

Samsung Fire & Marine (000810.KS) rose 2.51 percent also
after positive comments by Citigroup.

"We recommend investors accumulate shares in Samsung F&M as
signs of strong initial premium growth for fiscal year 2010
should begin to show from the first quarter of 2010," Citi said
in a report dated May 28.

(Editing by Chris Lewis)