S.Korea fears beef protests driving away investors

By Jack Kim

SEOUL (Reuters) - South Korea's prime minister said on Tuesday violent street rallies against a U.S. beef import deal are harming the country's international credibility and driving investors away.

Prime Minister Han Seung-soo issued the warning at a cabinet meeting as he renewed a pledge to crack down on protests that have grown increasingly violent and led to the arrests of more than 130 people over the weekend.

"The daily protests are making foreign investors avoid direct investment in Korea and also discouraging investment by domestic businesses," Han said. "The credibility of South Korea's economy is worsening rapidly."

South Korea's benchmark stock index is already under pressure from weakening economic growth and fears of mounting stagflation. The index fell 0.5 percent as foreign investors sold a net 166 billion won ($159 million) worth of stocks on Tuesday, the 17th straight day of net selling.

Han's comments echoed alarm that nearly two months of protests against the deal to resume imports of U.S. beef might speed up the flight of capital from South Korea as part of a larger movement of funds from emerging markets to safer havens such as U.S. Treasury bonds.

Analysts say the prospect of prolonged protests could mean further delays for President Lee Myung-bak's plans to implement pro-business reforms and could mean overseas investors keep their money out of the country for some time.

Adding to his woes, the Bank of Korea on Tuesday forecast the fastest inflation in a decade this year and the slowest growth since 2005, as soaring commodity costs and weakening exports hurt Asia's fourth-largest economy.

South Korea and U.S. trade officials said last week they had reworked a beef import deal first struck in April. The deal sparked massive street demonstrations that broadened into protests against Lee's leadership.