UPDATE 3-South Korea eyes steps to revive demand for autos

(Updates with minister, share prices, other countries)

By Yoo Choonsik

SEOUL, Dec 5 (Reuters) - South Korea pledged on Friday to support the country's carmakers, sending shares in the industry sharply higher, as the government tries to dodge a recession by reviving demand in Asia's fourth-largest economy.

The move, which could include a cut in the consumption tax on vehicles, comes as cooling foreign demand has forced Hyundai Motor (005380.KS), along with the whole of the economy, to rely on domestic demand to weather the global recession.

Policymakers at the country's central bank, the Bank of Korea, meet next week and economists are predicting a further cut in interest rates then after the bank lowered its base rate by a combined 1.25 percentage points since October.

Governments around the world are looking to shield their car industries as belt-tightening consumers shun showrooms, with U.S. lawmakers seeking up to $34 billion in aid, while Australia plans a trust to help finance local car dealers.

"The government will study pro-active measures to revive domestic demand and co-operate with the related ministries over a consumption tax cut and other measures," Minister of Knowledge Economy Lee Youn-ho told reporters.

Shares in Hyundai Motor jumped more than 5 percent and its affiliate Kia Motors Corp. (000270.KS) by more than 6 percent, driving the automobile sector index .KS42 up 3.6 percent.

Hyundai and other South Korean auto makers suffered a shocking 27 percent drop in their sales at home in November over a year earlier, or a 30 percent fall over a month earlier, figures released by companies had showed.

Auto makers employ 270,000 workers, or just more than 1 percent of the country's total workforce, but account for one-seventh of the total exports and help related industries such as parts makers keep thousands more in jobs.

FIRST RECESSION IN 11 YRS

Lee's ministry said in a report to a scheduled meeting of senior government officials earlier in the day that the car, semiconductor and petrochemicals industries were among those hardest hit by the global recession.

Lee said the government had no immediate plan to provide direct support for semiconductor and petrochemicals makers but could take part in the restructuring of companies if necessary.

Some analysts forecast South Korea's economy, which has relied heavily on exports for growth in recent years when domestic demand has been in a persistent slump, would probably slip into its first recession in 11 years next year.

The central bank has cut interest rates by 1.25 percentage points since early October and the government offered a fiscal stimulus package worth 14 trillion won ($9.5 billion) last month to lift annual growth by an additional 1 percentage point.

Analysts said any effort to revive domestic demand was welcome, but added the Bank of Korea would probably have to lower the benchmark rate by as much as another 1.25 percentage point from the current 4.0 percent over the next several months.

"It's time for the government to do anything it can to help boost domestic demand," said Park Sang-hyun, an economist at HI Investment & Securities. "But we think the central bank will have to continue cutting interest rates for the time being."

Park forecast the Bank of Korea would trim its base rate by half a percentage point to 3.5 percent next week and would eventually lower the rate down to a record low of 2.75 percent by the end of June next year. ($1=1479.9 Won) (Editing By Keiron Henderson & Jan Dahinten)