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Korea's Economy Expands Slightly, Misses Forecasts

South Korea's economy grew less than expected in the third quarter as companies cut investment in facilities by the most in nearly seven years in the face of an increasingly uncertain global economy, data showed on Thursday.

The gross domestic product rose a seasonally adjusted 1.4 percent in the third quarter from the second, the Bank of Korea estimated, missing market expectations for 1.5 percent growth and slowing from a 1.8 percent gain in the second quarter.

Analysts said the data reinforced the market's view that the central bank would hold interest rates steady for several more months, despite its concerns about fast money supply growth, to ensure Asia's fourth-largest economy stays on track.

"Because of concerns over the won and external factors, the central bank is unlikely to raise rates anytime soon," said Park Sang-hyun, an economist at CJ Investment & Securities. "The first rise could come sometime in the first quarter next year if inflation shows clear signs of jumping," he added.

The South Korean economy grew for the 18th quarter in a row, marking its longest uninterrupted expansion since 1992, but policy makers and analysts fear the slow U.S. economy and turbulent global financial markets could hurt exports.

"The economic growth momentum in South Korea will likely lose steam given the deepening weakness in the global appetite resulting from the expected bearish stock markets," said Leslie Khoo, an economist at FORECAST in Singapore.

Analysts have said turbulent financial markets due to the U.S. subprime mortgage crisis would reduce spending by American consumers and make companies around the would more reluctant to expand spending.

The Bank of Korea's data showed South Korean companies cut investment in production facilities by a seasonally adjusted 5.8 percent in the July-September period over the previous quarter, the biggest drop since the fourth quarter of 2000.

Goods exports also lost momentum, growing by a seasonally adjusted 1.5 percent in the third quarter over the second quarter after growth of 5.2 percent in the second quarter and 2.7 percent in the first, the data showed.

The GDP grew 5.2 percent in the third quarter from the same 2006 period, compared with market expectations in a Reuters poll for a 5.1 percent annual gain and following a 5.0 percent rise in the second quarter over a year before.

The Bank of Korea raised interest rates in July and August before holding them steady for the next two months to prevent high money growth from stoking inflation. It raised rates seven times since late 2005.