UPDATE 1-South Korea's Q3 growth dips, recovery seen slow

(Recasts after GDP data, adds more details)

* Q3 GDP +0.2 pct q/q (vs +0.1 pct forecast, +0.3 pct in Q2

* Q3 GDP +1.6 pct y/y (vs +1.9 pct forecast, +2.3 pct in Q2

* Capital investment falls on weak Europe, China demand

* Oct consumer sentiment index hits 9-month low

SEOUL, Oct 26 (Reuters) - South Korea's economic growth almost halted in the third quarter as hesitant and indebted consumers were unable to make up for steep spending cuts by companies on declining exports to Europe and China.

Gross domestic product grew just 0.2 percent in the July-September period from the previous quarter as corporate spending on facilities plunged on gloomy export prospects, advance estimates by the country's central bank showed on Friday.

The seasonally adjusted reading marked the slowest growth since the fourth quarter of 2009 for Asia's fourth-largest economy, that relies heavily on overseas sales of products ranging from memory chips and smartphones to cars and ships.

Authorities offered nearly $12 billion in stimulus steps and cut interest rates twice in recent months to make up for the falling exports, but analysts, though seeing a recovery ahead, said demand from the major economies still holds the key.

``There is no firm evidence that growth will suddenly get better in the fourth quarter,'' said Yum Sang-hoon, economist at SK Securities.

``The market is expecting the Bank of Korea to cut rates in either January or February next year. With domestic demand so low and the government spending all it can to support the economy, it would be strange to leave interest rates.''


Private consumption grew by a seasonally adjusted 0.6 percent in the third quarter after a 0.4 percent rise in the second quarter. Capital investment was down 4.3 percent after a 7.0 percent drop, the Bank of Korea's estimates showed.

South Korea's quarterly economic growth came below 1 percent for the sixth consecutive quarter, marking the longest such period on record tracing back to early 1970.

Underscoring further weakness ahead, a central bank survey showed early on Friday that South Koreans grew more pessimistic about the economy and their living conditions.

Falling exports have already prompted shipbuilder Hyundai Heavy Industries to plan on cutting workforce for the first time in its 40-year history while dealing steelmaker POSCO with a credit ratings cut by a global agency.

Overseas sales by South Korea, the world's seventh-largest exporter, fell 5.6 percent in the third quarter over a year earlier and a government-run bank specialising in trade financing forecast a similar drop in the current quarter.

Over a year earlier, South Korea's gross domestic product expanded by 1.6 percent, compared to a median 1.9 percent gain forecast in the Reuters survey and after a 2.3 percent year-on-year rise in the second quarter.

That brings the growth rate for the January-September period at an average of 2.2 percent on a year-on-year basis, Reuters calculation shows, compared with the central bank's downgraded forecast of 2.4 percent for the whole of this year.

The Bank of Korea last cut its benchmark interest rate by 25 basis points to 2.75 percent early this month and is widely expected to stand pat next month, although investors price in another reduction over the coming months.

(Editing by Eric Meijer)