Mass protests in South Korea

By Jon Herskovitz and Yoo Choonsik

SEOUL (Reuters) - South Korea's entire cabinet offered to resign on Tuesday in the face of massive street protests as its increasingly unpopular president warned that Asia's fourth-largest economy could be heading into crisis.

The protests against the government, in office barely three months, were sparked by public outcry over a deal to widen its market to U.S. beef imports and have cast a darkening cloud over President Lee Myung-bak's plans for sweeping reform.

"The prime minister offered the cabinet's resignation at the regular meeting this morning (with Lee)," a spokeswoman at the prime minister's office said, in what local media said was a response to the mounting anti-government protests.

Tens of thousands of protesters chanting "Lee Myung-bak go away" clogged the streets of central Seoul in a candlelight rally attended by mothers toting children, radical labor groups, office workers and college students.

Police sealed off roads in the capital, stacking sand-filled shipping containers to block the main street leading to the presidential Blue House and deployed high-pressure water cannons to disperse any violent protesters.

Organizers said 700,000 gathered in Seoul for the largest anti-Lee rally to date. Police put the number at 80,000 while some local media estimated the crowd at 200,000 to 400,000.

"I want to denounce not only the beef deal but the other policies of the Lee Myung-bak government. I'm just one person but I think the president will listen to me when I speak loudly with so many others," said protester Sang Mi-ra.

ECONOMIC ROUGH PATCH

Lee warned that surging resource prices and slowing growth were pushing the economy toward its roughest patch in a decade.

"Our economy is faced with a serious difficulty, with prices rising and the economy gradually slowing," Lee said in a speech to mark the 21st anniversary of pro-democracy protests that helped end years of autocratic rule in South Korea.

Shortly after he spoke, the government announced that producer price inflation in the world's fifth-largest crude oil importer had hit a near 10-year high last month.

The data makes it even more likely the central bank will keep interest rates on hold at its monthly meeting on Thursday despite recent pressure from the government to relax monetary policy to spur slowing domestic demand.

Inflation fears have hit local financial markets and on Tuesday forced the authorities to sell dollars to prop up the weakening won. Bonds prices also fell and the political unrest was cited as a factor is pressing down share prices.

Lee's promise of 6 percent growth this year now looks out of reach and many economists doubt it will even match last year's 5 percent rise because of the impact of slowing economic growth and surging inflation around the world.

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