Seoul shares fall 0.4 pct; banks slip,defensives up

* Institutional selling weighs on KOSPI

* Banks decline, weighed by CIT news

* Defensive issues outperform;KT up despite weak results

(Updates to mid-morning)

By Jungyoun Park

SEOUL, Nov 3 (Reuters) - Seoul shares turned lower on Tuesday, reversing earlier rises on falls by techs and banks including Shinhan Financial (055550.KS), with caution pervading ahead of the U.S. Fed's interest rate meeting and comments.

"Markets are testing support at the index's current level today. Investors are still undecided about the economic and corporate earnings outlook for the fourth quarter, and the first quarter next year," said Lee Jin-woo, a market analyst at Mirae Asset Securities.

"Investors are closely following the U.S. (Fed's) upcoming interest rate decision and comments due out this week," Lee said, adding that the index would likely move between its 60-day and 120-day moving average of around 1,600 and 1,540 respectively.

The Korea Composite Stock Price Index (KOSPI) was down 0.36 percent at 1,553.46 points as of 0132 GMT, weighed down by institutional selling of a net 150 billion won worth of stocks.

Shinhan Financial Group and Korea Exchange Bank (KEB) (004940.KS) declined on the day they are set to post quarterly results.

"Sentiment towards banks have weakened following CIT Group's bankruptcy news, and amid ongoing uncertainties about the economic outlook, investors are not exactly grabbing banking stocks," said Hwang Huhn, an analyst at Woori Investment & Securities.

CIT Group, one of the larger commercial lenders, filed for bankruptcy earlier this week.

Shares in Shinhan Financial Group were down 2.29 percent and KEB declined 2.26 percent.

Shares in Hyosung (004800.KS) underperformed after leading shareholders in Hynix Semiconductor (000660.KS) said they would extend a deadline for Hyosung's proposal to buy a controlling stake in the world's No.2 memory chip maker by two weeks, after the only contender asked for more time. [ID:nSEO133526]

Hyosung fell 2.5 percent, but Hynix advanced 0.28 percent.

But defensive issues outperformed.