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SKorean shares close lower as rally fizzles on record oil price - UPDATE

SEOUL (Thomson Financial) - South Korean shares closed lower Wednesday as investors, fearing that oil prices will top 100 dollars this week, locked in gains after the key KOSPI index came within striking distance of its previous record.

The key index jumped by as much as 1.5 percent in early trade as institutional investors snapped up high-tech stocks including Samsung Electronics. But the rally soon lost steam as crude oil surged past 98 dollars in Asian trade for the first time after the greenback sank to a new low and on expectations of further declines in US energy reserves.

The KOSPI index closed down 11.05 points or 0.5 percent at 2,043.19. The benchmark index rose to as high as 2,085.03, just a tad off the record 2,085.45 set on Nov 1.

"The market attempted in vain to break the record but investors saw that oil prices can actually go to 100 dollars which was just a joke a few months ago" and that spooked them, Goodmorning Shinhan Securities analyst Kim Joong-Hyun said.

The market may fall further if investors settle their futures and options contracts when they expire tomorrow, which could affect as much as 5 trillion won worth of shares, Kim said.

Investors are similarly wary on how the Bank of Korea, which will hold its monthly policy meeting also on Thursday, will assess inflationary pressures stemming from rising oil prices and if it flags a hike in interest rates in the near future, if not tomorrow, he said.

Trading was active, with 335 million shares worth 8.5 trillion won changing hands.

Decliners outnumbered falls 523 to 299.

Institutions were net buyers of shares worth 95.1 billion won while foreign and retail investors were net sellers of 7 billion won and 70.7 billion won in shares, respectively.

Samsung Electronics surged 22,000 won or 4 percent to 570,000 won as stable prices of memory chips and flat-screen displays raised hopes that the worst may be over for the semiconductor industry. Hynix rallied 500 won or 2.1 percent to 24,650 won.

LG Electronics soared 6,000 won or 6.1 percent to 104,000 won, with a number of analysts highlighting a steady earnings outlook for the company given the strength of its handset division.

SK Telecom jumped 9,000 won or 4.3 percent to 216,500 won as investors belatedly cheered its decision Monday to pay a special dividend of 1,400 won per share at the end of this year. That will be on top of the annual dividend of 8,000 won.

Doosan Heavy Industries fell 6,500 won or 3.7 percent to 168,000 won as investors locked in recent heavy gains after the company reported its operating profit doubled to 59.7 billion won in the third quarter, driven by increased overseas orders and higher margins. The stock has surged 80 percent since Oct 1. (1 US dollar = 906.1 won) eunkyung.seo@thomson.com es/ms/es/ms COPYRIGHT Copyright Thomson Financial News Limited 2007. All rights reserved.

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