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South Korea's Economic Growth Tops Forecasts

South Korea's economy grew more than expected in the fourth quarter as capital investment picked up, data showed on Friday, but fears of a slowdown were mounting due to deepening troubles in the U.S. economy.

Expectations for slower growth in the first quarter and the Federal Reserve's aggressive rate cuts have raised the chances the Bank of Korea could lower interest rates soon for the first time since late 2004 despite high inflation, economists said.

South Korea's gross domestic product for the October-December period rose a seasonally adjusted 1.5 percent from the prior quarter, when the GDP expanded a revised 1.3 percent, advanced estimates from the central bank showed.

Capital investment contributed most to the growth in the fourth quarter while a jump in imports due to firmer global oil and raw materials prices was among the key constraints on the GDP growth, the data showed.

"Although we had a favorable Q4 GDP number, we are seeing the deteriorating net export growth affected by external blows, which may have a contagious effect on private consumption," said Chun Chong-woo, senior economist at SC First Bank.

Park Sang-hyun, chief economist at CJ Investment & Securities, forecast the Bank of Korea may lower the overnight call rate once during the first half.

The South Korean central bank has held rates steady for the past five months after having raised them by a total of 1.75 percentage points in seven steps between October 2005 and August 2007. It last cut rates in November 2004.

The figures came a day after China said its economic growth during the fourth quarter slowed to an annual rate of 11.2 percent from 11.5 percent in the July-September period and 11.9 percent in the second quarter.

South Korea sends more than one-fifth of its export shipments to China, and economic growth trends in the much-larger neighbor provide an important guide to South Korea's economic prospects.

The Bank of Korea forecast last month that growth in Asia's fourth-largest economy would slow to 4.7 percent in 2008 on easing exports, although President-elect Lee Myung-bak has repeatedly pledged to achieve growth of at least 6 percent.