*KOSPI sheds 2.6 pct
*Banks tumble as outlook fears mount
*POSCO gains after disqualified from Daewoo bid
(Updates to midday)
By Park Jung-youn
SEOUL, Oct 17 (Reuters) - Seoul shares reversed an early
rally to extend losses to over 3 percent on Friday and touch
multi-year lows, with investors resuming Thursday's selloff on
fears about the economy's ability to weather an imminent
recession.
The Korea Composite Stock Price Index was down 2.55
percent to 1,182.79 points as of 0205 GMT after plunging to as
low as 1,166.88 points, its lowest since Nov. 1, 2005,
whipsawing from gains of up to 2.6 percent in early trade.
The market sank under last week's 1,179-point low hit before
the U.S. and European governments unveiled financial system
rescue plans and is back on the downward track after posting a
9.4 percent tumble in the previous session, the third-biggest
percentage drop in the market's history.
"After the UBS emergency measures, some investors are
starting to doubt whether the government rescue packages will be
enough," said Park So-yeon, a market analyst at Korea Investment
& Securities, referring to the Swiss bank taking steps on
Thursday to shore up its finances.
"Investors are very worried that something bad might happen
(in the United States) over the weekend. Anxiety over mounting
uncertainties is prompting them to continue to sell shares
despite the indices' sharp falls," said Oh Hyun-seok, a senior
market analyst at Samsung Securities.
"No one knows how far the KOSPI will fall. Banks are being
sold heavily as their outlook is growing increasingly perilous,"
Oh added.
The market's drops were led by banking issues, which
continued to face pressure after ratings agency Standard & Poor's
placed its counterparty credit ratings on major South Korean
banks on creditwatch with negative implications, citing their
ongoing foreign currency funding pressures. [ID:nWLB2700]
"Potential losses from their lending activities to
construction firms and investments in project financing are said
to bigger than the market had expected. Added to that are credit
rating agencies issuing negative comments on the sector," said
Shin Kyu-sun, an analyst at HI Investment & Securities.
"A lot of jittery foreign investors are literally taking
flight from the domestic banking sector," said Suh Young-soo, a
senior analyst at Kiwoom.Com Securities.
KB Financial Group (105560.KS) fell 7.95 percent and Shinhan
Financial Group (055550.KS) tumbled 10.69 percent. Hana Financial
Group (086790.KS) shed 5.66 percent.
But shares in POSCO (005490.KS) bucked the market decline,
rising 2.65 percent, as investors welcomed news that the world's
No.4 steelmaker failed to make it to the final round of a contest
for a controlling stake in Daewoo Shipbuilding & Marine
Engineering (042660.KS).
Shares in Hanwha Corp (000880.KS), the de-facto holding firm
of Hanwha Group, plunged 14.92 percent as POSCO's
disqualification from the deal left just Hanhwa and Hyundai Heavy
Industries (009540.KS), the world's top shipbuilder, in
competition for Daewoo.
However airlines rose, helped by the won currency's KRW=
gains of up to 5 percent against the dollar in early trade, which
could alleviate their foreign currency debt burdens.
Korean Air Line (003490.KS) climbed 3.65 percent and Asiana
Airlines (020560.KS) inched up 0.57 percent.
(Editing by Jonathan Hopfner)
