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S.Korea Sept inflation up, but stays below c.bank target

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SEOUL, Oct 2 (Reuters) - South Korea's annual inflation in September quickened for the first time in 10 months led by foods, but stayed below the central bank's target, backing market expectations for an interest rate cut next week.

The consumer price index rose 2.0 percent in September from a year earlier, Statistics Korea data showed on Tuesday, picking up from a 1.2 percent gain in August, when the inflation rate touched its lowest in more than a decade since May 2000.

It was the first time since November last year that the annual inflation rate accelerated, but the figure was still well below the central bank's target of 3 percent as the slowing economy keeps price pressures at bay.

The median forecast from a Reuters survey was for annual inflation to pick up to 2.0 percent in September, with the forecasts ranging from 1.5 percent to 2.5 percent. The index was seen gaining 0.6 percent month-on-month.

Foods led the gains in prices after typhoons and heavy rainfalls hit the country, sending farm products prices rising 8.3 percent in September from the previous month and by 9.7 percent over a year before.

The benign inflation data, combined with figures showing on Monday that exports fell for the third consecutive month over a year earlier, reinforced the market's expectations that the Bank of Korea would cut interest rates at its Oct. 11 policy meeting.

The central bank cut the policy interest rate by 25 basis points to 3.0 percent in July in a surprise move, and has since kept it unchanged pending stimulus measures by the government.

Annual core inflation, which strips off volatile food and fuel prices, ticked up to 1.4 percent in September from 1.3 percent in August. It quickened for the second consecutive month but was low compared to last year's average of 3.2 percent.

The annual rate of inflation averaged 2.3 percent for the January-September period, far lower than an average of 4.0 percent for the same period in 2011.

(Reporting by Choonsik Yoo and Se Young Lee; Editing by Kim Coghill)

((choonsik.yoo@thomsonreuters.com)(+822 3704 5580)(Reuters Messaging: choonsik.yoo.thomsonreuters.com@reuters.net))

Keywords: KOREA ECONOMY/INFLATION