UPDATE 1-S.Korea Jan exports up, recovery seen weak
* S.Korea Jan exports +11.8 pct y/y, growth at 11-mth high
* S.Korea HSBC/Markit Jan PMI s/adj 49.9 vs 50.1 in Dec
* S.Korea Jan CPI +1.5 pct y/y, far below BOK target range
SEOUL, Feb 1 (Reuters) - South Korea's exports in January grew at the fastest pace in 11 months but a private survey showed that manufacturing activity shrank marginally, underscoring weak underlying conditions and suggesting that more stimulus may be necessary.
Exports for Asia's fourth-largest economy grew by 11.8 percent from a year earlier in January, the Ministry of Knowledge Economy said on Friday, compared with a 5.7 percent drop in December and a median 10.6 percent rise tipped by a Reuters survey of analysts.
While this was the sharpest pickup since February 2012, analysts said the figure was distorted by the two extra working days compared with a year earlier. The HSBC/Markit purchasing managers' index (PMI) for South Korea, issued separately, showed that manufacturing activity declined marginally and suggested that underlying conditions remain fragile.
"Though exports are recovering as external conditions improve, corporate investment remains suppressed because of uncertainties about the won-yen exchange rate and home prices continue to deflate, so domestic demand still isn't recovering," said Lee Chul-hee, chief economist for Tong Yang Securities in Seoul.
JANUARY EXPORTS ORDERS UP, BUT WON STRENGTH A WORRY
A sub-index in the HSBC/Markit PMI showed that company inventories grew in January for the first time in four months, but the pickup was marginal. Some survey respondents said their stocks increased because of weaker-than-expected demand.
Market reaction to the data was muted, with data largely in line with expectations.
Another sub-index for new export orders in the HSBC/Markit PMI rose to seasonally adjusted 51.3 in January from a 48.9 in December, registering the first growth since May 2012 and suggesting that manufacturing activity may start expanding in the coming months.
Most policymakers and analysts expect South Korean exports in 2013 to rebound from last year's 1.3 percent decline, in line with expectations of a gradual global recovery. But the won's rapid appreciation late last year has raised concerns that exporters will be undercut, leading to reduced investment reductions and fewer jobs.
Hyundai Motor Co last week reported an unexpected on-year decline in fourth-quarter net profit in part due to the strong won, warning that the won's recent appreciation and the yen's decline would hurt its price competitiveness.
Samsung Electronics Co also said last week that the won's recent strength reduced the company's fourth-quarter operating profit by 360 billion won ($329 million) and said the currency's strength could have a "negative impact" of more than 3 trillion won in 2013.
Still, policymakers say they have yet to see significant damage to exporters from the appreciation of the won, which rose by 3.8 percent against the dollar and by 16.5 percent against the yen in the fourth quarter.
The Bank of Korea in January kept the benchmark rate unchanged at 2.75 percent for the third consecutive month. But the central bank slashed its 2013 growth and inflation forecasts, leading analysts to predict at least one more rate cut in February or March.
Data issued earlier Friday showed that South Korea's annual inflation stood at 1.5 percent in January, still comfortably below the central bank's target range of between 2.5 percent and 3.5 percent. This gives the central bank room to ease rates further with low risk of stoking price pressures.
"The Bank of Korea is going to cut interest rates because price inflation isn't expected to go up and the won is eventually going to keep strengthening," said Meritz Securities economist Park Hyung-jung.
"Other Asian countries, like India most recently, have been cutting rates or are preparing to. South Korea most likely will follow that trend," he said. ($1 = 1093.2500 Korean won)
(Additional reporting by Christine Kim; Editing by Eric Meijer)