South Korea pension fund eyes U.S. bank stakes: source

SEOUL (Reuters) - South Korea's National Pension Service, which manages more than $200 billion, is looking to buy shares in top U.S. financial services firms in the wake of the subprime meltdown, a source close to the fund said on Tuesday.

The world's fifth-largest pension fund by assets may use a foreign asset manager to target companies and invest in them on its behalf, the source told Reuters, asking not to be identified until an announcement is made.

"As a way of expanding private equity investment in foreign assets, they are looking at U.S. financial services companies," the source said. "Possible investments would be made in an indirect way."

The names of U.S. companies and investment size have not be released yet.

The NPS declined to comment.

The move comes as major global banks, including Citigroup (C.N), continue turning to sovereign funds and outside investors for capital injections as the global credit crisis rumbles on.

In January, Korea Investment Corporation announced an agreement to buy $2 billion worth of preferred shares in Merrill Lynch MER.N, joining the ranks of sovereign wealth funds buying into subprime mortgage-hit Wall Street banks.

South Korea's No. 4 financial services firm, Hana Financial Group (086790.KS), said last week it may buy shares in Merrill from Singapore fund Temasek. Reports put a potential $50 million value on any deal.

The state pension fund is aiming to increase stock and alternative investments, and diversify into overseas assets for higher returns. In 2008, its investment focus will be on corporate M&A deals and energy and resource developments, according to a statement released late last month.

By the end of 2012, it plans to increase alternative investments to a tenth of its assets estimated at 415 trillion won ($438.5 billion), up from 5.5 trillion won by the end of last year.

($1=946.4 Won)

(Reporting by Kim Yeon-hee; Editing by Keiron Henderson)