Seoul shares hit 2-mth low; POSCO dives on Q4 woes

* POSCO drops 5 pct, hit by ArcelorMittal's Q4 outlook

* Foreign investor net selling hits 2009 high

(Updates to close)

By Seo Eun-kyung

SEOUL, Oct 29 (Reuters) - Seoul shares tumbled for a third straight day to post a two-month closing low on Thursday, with steelmakers and shipbuilders hit hard as renewed woes over the global economy spurred the largest foreign investor net selling this year.

Foreign investors dumped a net 468 billion won ($390.3 million) worth of mainboard shares while picking up 1 trillion won worth of bond futures KTBc1 in a rush to safer assets, with poor U.S. home-related data fuelling fears the economic recovery may quickly lose steam.

"Doubt over the sustainability of the fast economic recovery pace is growing now," said Kim Hak-ju, head of research at Samsung Securities.

Hana Daetoo Securities analyst Lee Young-gon also cited worries about a slower recovery and possible exit strategies.

"Gaining momentum from the fast recovery is weakening and domestic businesses are expected to see a slowdown toward the end of the year, keeping pace with the global economy."

The Korea Composite Stock Price Index ended down 1.48 percent at 1,585.85 points, the lowest close since Aug. 21, after sliding nearly 3 percent earlier. The three-day losing streak trimmed the benchmark index by 4.3 percent.

POSCO (005490.KS), the world's No.4 steelmaker, plunged 5.1 percent, its biggest daily drop in 5 months, to an over two-week low, as its bigger rival ArcelorMittal (ISPA.AS) dampened recovery expectations on Wednesday with a muted forecast for the final three months of 2009. [ID:nLQ682729]

The downbeat outlook contrasted with POSCO's robust expectations for the coming quarters delivered earlier this month. [ID:nSEO240394]

Hyundai Heavy Industries (009540.KS), the world's top shipbuilder, fell 3.5 percent amid persistent worries over declining new orders. After the market closed, it reported its third-quarter results, with the operating profit falling short of market forecasts.

SK Telecom (017670.KS) ended 0.28 percent down after South Korea's top mobile carrier reported an upbeat 23 percent rise in quarterly operating profit. [ID:nSEO292815]

KB Financial Group (105560.KS) dropped 2.61 percent as investors remained wary ahead of its results release. Upon the market closing, the parent of the nation's largest lender reported a bigger-than-expected drop in quarterly earnings due to provisioning costs and slow recovery in interest margins. [nSEO324512]

Woori Finance (053000.KS) ended down 1.49 percent in line with its industry peers despite strong third-quarter results. [ID:nSEF000029]