(Refiles to fix typographical error in second paragraph)
* June exports +2.5 pct y/y (Reuters poll: +5.1 pct)
* June annual inflation at 1.7 pct (Reuters poll: 1.9 pct)
* June HSBC/Markit mfg PMI at s/adj 48.4, a 10-mth low
* Growing view for interest rate cut
By Christine Kim and Choonsik Yoo
SEOUL, July 1 South Korean exports, inflation
and manufacturing activity for June all showed Asia's
fourth-largest economy was losing momentum, lending support to a
vocal minority view that the central bank may be forced to cut
interest rates to spur growth.
After a strong start to the year, the export-reliant economy
has been hobbled in recent months by a drum beat of negative
data, prompting markets to reassess the outlook for monetary
policy and gross domestic product.
Shipments in June grew 2.5 percent over a year earlier,
trade ministry data showed on Tuesday, rebounding after a 1.0
percent fall in May. Growth, however, fell well short of a
median 5.1 percent rise tipped in a Reuters survey of analysts,
hurt by a decline in exports to China and Europe.
"Today's trade and inflation data will lend more strength to
the rate cut view for sure. In our case, we see a rate cut as
soon as August," said Jun Min-kyoo, an economist at Korea
Investment & Securities. He was one of a few economists who had
expected a rate cut even before the June data was released.
Domestic money market rates are pricing in an increasing
possibility of a cut in the policy interest rate in coming
months, although the dominant market view is that the Bank of
Korea will hold steady for an extended period before hiking next
The policy rate has been kept unchanged at 2.50 percent
since a cut by a quarter of a percentage point in May last year.
China's economic slowdown and Europe's uneven recovery
offset much of the boost to South Korean exports from sustained
U.S. growth at a time when domestic demand remains shaky in the
aftermath of a deadly ferry disaster.
Seoul's financial markets showed a muted reaction to the
batch of weak indicators. The won was almost flat against
the dollar on the day while the front-end futures on three-year
treasury bonds rose a slight 0.04 point to 106.47.
Exports to China, South Korea's largest market, fell 1.1
percent in June from a year before, declining for a second
consecutive month. Shipments to the European Union also dipped
2.2 percent after surging 32 percent in May, while sales to the
United States rose 15.8 percent on-year.
Inflation data released separately by the statistics agency
on Tuesday underscored a recent pull-back in domestic demand.
Annual consumer inflation in June held steady from May at
1.7 percent, below the bottom of the central bank's 2.5
percent-3.5 percent target and lower than a median 1.9 percent
tipped in the Reuters survey.
The Bank of Korea, the nation's central bank, is now widely
expected to lower its annual economic growth forecast of 4.0
percent for this year, when it next publishes revised estimates
on July 10.
South Korea's economy, a major exporter in Asia, grew 0.9
percent on-quarter each in the first quarter of this year and
the fourth quarter of last year, higher than the average of 0.5
percent for 2012. It expanded 3.0 percent in 2013.
The weak demand both from abroad and at home was confirmed
by a private-sector survey on Tuesday as the HSBC/Markit
purchasing managers' index on South Korea's manufacturing sector
fell to a 10-month low in June.
Government officials have expressed concern about the
slowing recovery, indicating they are prepared to offer steps to
support the economy.
In comments earlier this month, central bank governor Lee
Ju-yeol acknowledged the recovery had "paused," but said it was
premature to make a call on whether the economy was headed for a
Central bank officials have been careful not to suggest
that rates could be cut further, fearing a possible spike in
inflation and as lower borrowing costs could stoke already heavy
Bond prices have risen in recent weeks on expectations that
the central bank would keep the policy rate low for longer, or
even cut it.
The yield on one-year treasury bonds was last
quoted at 2.579 percent on Monday, sharply down from a 2014
closing high of 2.680 percent seen in early March although up
from 2.565 percent set on June 20.
Adding to the headwinds of still-sluggish demand from
overseas markets, South Korea's consumer spending took a hit as
domestic tourism suffered after the April 16 sinking of a ferry
killed more than 300 people.
Statistics agency data showed last week that the retail
sales index rose a seasonally adjusted 1.4 percent in May over
the previous month but failed to recoup a 1.6 percent loss set
(Reporting by Christine Kim and Choonsik Yoo; Editing by Shri