Seoul shares down on record oil, unchanged rates

(Updates to mid-morning)

SEOUL, May 9 (Reuters) - Seoul shares dropped after opening
higher on Friday, with record oil prices pressuring manufacturers
and refiners while disappointment over a central bank decision on
Thursday to keep interest rates on hold weighed on financials.

South Korean crude refiners were among the worst performers,
with SK Energy (096770.KS: Quote, Profile, Research, Stock Buzz) tumbling 4.31 percent to 111,000 won
after U.S. crude hit a peak of over $124 on Thursday, raising
worries about thinning refining margins.

Financials also suffered on views the Bank of Korea will keep
interest rates on hold for the near future and persistent profit
worries after a weak set of first quarter results last week.

The Korea Composite Stock Price Index dipped 0.79
percent to 1,833.40 points, down 3.7 percent on the year, but up
19 percent from its mid-March low of 1,537.53 points.

"Disappointment from Thursday's rate hold is eating into
recent gains that were made partly due to hopes of a rate cut,"
said Y.S. Rhoo, a market analyst at Hyundai Securities.

Expectations that the central bank will continue to hold
rates steady in June following warnings about inflationary
pressure from the Bank of Korea's governor also dampened
sentiment, analysts said.

REFINERS FALTER

Shares in South Korea's refiners were struggling, with S-Oil
(010950.KS: Quote, Profile, Research, Stock Buzz) down 1.61 percent to 67300 won, while GS Holdings
(078930.KS: Quote, Profile, Research, Stock Buzz) remained flat at 38,900 won.

"Crude has hit an all-time-high, but prices of refined
products are not catching up fast enough and refining margins are
set to contract further," said Lee Kwang-hoon, an analyst at
Goodmorning Shinhan Securities.

Continued weakness in the won currency, which hit a
2-1/2-year low against the dollar on Thursday, will add to
refiners' costs as they depend on crude oil imports, Lee added.

Banking shares also led the downward run, with Shinhan
Financial Group (055550.KS: Quote, Profile, Research, Stock Buzz) falling 2.04 percent to 52,900 won
and Woori Finance Holdings (053000.KS: Quote, Profile, Research, Stock Buzz) down 1.98 percent to
19,800 won.

Analysts said that in addition to the central bank's rate
decision, investors were concerned about the sector's murky
earnings outlook.

"Net interest margins are still falling and the relief rally
from easing credit market concerns has lost some steam," said
Shin Kyu-kwang, an analyst at SK Securities.

"Banks need fresh catalysts to bump up the shares, which we
are just not seeing yet," Shin added.

Carmakers such as Hyundai Motor (005380.KS: Quote, Profile, Research, Stock Buzz) and Kia Motors
(000270.KS: Quote, Profile, Research, Stock Buzz) fell on the back of heightened worries that record
energy prices may dampen consumer demand for cars.

Hyundai Motor fell 1.23 percent to 88,000 won and Kia Motors
declined 1.46 percent to 13,500 won.

(Reporting by Park Jung-youn; Editing by Marie-France Han and
Jonathan Hopfner)