* POSCO loses after reports it in talks to buy Canada mine stake
* Telecom shares buck trend
SEOUL Dec 4 South Korean shares retreated in morning trade on Tuesday after data showed that U.S. manufacturing shrank last month to its lowest level in more than three years, rekindling concerns about the state of the world's biggest economy. [ID nL1E8N371D]
The Korea Composite Stock Price Index (KOSPI) ticked 0.56 percent lower at 1929.15 points as of 0129 GMT.
Chinese manufacturing output grew last month for the first time in more than a year but a surprise contraction in U.S. factory activity tempered optimism for the health of the world economy.
"The manufacturing data in China and Europe were good, but the key is the U.S. economy. The U.S. manufacturing sector remains lacklustre, weighing on the stock market today," said Cho Young-hyun, an analyst at Hana Daetoo Securities.
"The stalled U.S. budget talks will curb the short-term rally of the KOSPI. But I expect the U.S. manufacturing data to rebound in December, as consumer sentiment is improving because of rising prices of assets such as homes, stocks and bonds," he said.
POSCO lost 2.2 percent after news that the South Korean steelmaker had retained exclusive negotiating rights to acquire a stake in a Canadian iron ore mine operator controlled by ArcelorMittal.
The Korea Economic Daily reported on Tuesday that POSCO has invited South Korea's National Pension Service to act as a financial investor in the deal expected to be worth more than $1 billion.
"Investors have no problems with POSCO seeking to secure steelmaking materials, but the price does matter. Investors are concerned about potentially high acquisition prices, which are sending POSCO shares down today," said Kim Yun-sang, an analyst at LIG Investment & Securities.
Hyundai Motor trimmed earlier gains stemming from its solid U.S. sales figures in November, falling 0.7 percent.
Telecom stocks, regarded as defensive stocks because of their stable dividends, bucked the market decline, with LG Uplus up 2.1 percent and KT rising 0.8 percent.
Banks and securities firms were among the worst performers, with the bank sub-index down 1.2 percent and securities sub-index losing 1.1 percent. (Reporting by Hyunjoo Jin; Editing by Eric Meijer)