Seoul shares lower on economic worries; SK Tel hit

*SK Tel hit by POSCO bond news, Sprint bond cancellation

*NHN tumbles on ratings downgrade

*Exporters gain strength on weaker won

(Updates to midmorning)

By Park Jung-youn

SEOUL, Aug 8 (Reuters) - Seoul shares traded lower on Friday
on higher oil prices and falls in U.S. peers overnight after
losses by a major insurer, while the Bank of Korea's interest
rate rise on Thursday continued to hurt sentiment.

The Korea Composite Stock Price Index was down 0.17
percent at 1,561.42 points as of 0203 GMT, but still up from the
session low of 1,544.10 reached in the opening hour.

"Investors need to brace themselves for further falls as
corporate earnings seem set to decline as macroeconomic
fundamentals continue to worsen," said Shim Jae-youb, a market
analyst at Meritz Securities.

"With the rate rise and further falls in U.S. shares, the
market's under a lot of downward pressure," Shim added.

Shares that are sensitive to energy prices such as Korean Air
Line (003490.KS) and Asiana Airlines (020560.KS) declined after
U.S. crude CLc1 rose above $120 per barrel on Thursday.

Korean Air Line dipped 0.43 percent to 45,950 won and Asiana
Airlines shed 0.71 percent to 4,885 won.

Meanwhile shares in SK Telecom (017670.KS) dropped 3.45
percent to 196,000 won after news that South Korea's POSCO
(005490.KS) was on Thursday selling bonds exchangeable for
U.S.-listed shares in the firm.[ID:nHKG336786]

The five-year, zero-coupon bonds are guaranteed by POSCO and
exchangeable for shares in South Korea's SK Telecom at a 23
percent premium to the $22.29 Wednesday closing price of SK
Telecom American depository receipts (ADRs), sources said.
[ID:nHKG336786]

"SK Telecom's ADR price tumbled yesterday on the reports and
they're affecting SK Tel's Seoul-listed shares as well," said
Stan Jung, an analyst at Woori Investment & Securities.

Analysts also said SK Tel shares were affected by news that
Sprint Nextel Corp (S.N), the U.S.'s No.3 mobile provider,
canceled its $3 billion convertible sale a day after announcing
it, due to previous reports of SK Tel's interest in the U.S.
firm.

"Since there has previously been talk about SK Tel's interest
in Sprint, the news triggered rumors that SK Tel was providing
Sprint capital," said Lee Dong-seob, an analyst at Daishin
Securities.

Meanwhile shares in in Internet portal operator NHN
035420.KQ plunged 8.57 percent to 160,000 won after Citigroup
downgraded its rating on the company's stock to "sell" and
slashed its target price 41 percent, citing disappointing second
quarter results and a weak earnings outlook.

But some exporters recovered from their latest sharp losses
as the won KRW= hit a near 3-week low against the dollar early
on Friday, boosting the price competitiveness of South Korean
goods.

Hynix Semiconductor (000660.KS) rose 2.94 percent to 22,750
won and Kia Motors (000270.KS) gained 2.76 percent to 13,050 won.