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South Korea's Export Growth at Three-Year High

South Korean exports in April rose more than expected and by their fastest annual pace in more than three years, data showed on Thursday, easing worries about the impact of a sluggish global economy on the country's sales abroad.

The data may dent hopes for interest rates cuts, but economists said the government preferred lower borrowing costs to achieve its ambitious target of 6 percent growth for this year in Asia's fourth-largest economy.

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CNBC.com
Korea, Korean Flag

"The export figures are much better than expected and showed the economic slowdown would not be severe. But the government, which still focuses on stable growth, will carry out pre-emptive steps and there still is room for a rate cut," said Lee Sang-jae, an economist at Hyundai Securities.

Despite growing expectations that President Lee Myung-bak's growth goal for this year will be out of reach, his government has stuck with the target and has suggested repeatedly that the central bank help by cutting interest rates.

Earlier, Vice Finance Minister Choi Joon-kyung said the country was able to meet the 6 percent growth target with policy steps.

"The 6 percent target is still valid. Despite various difficult conditions, we can achieve the 6 percent target with many policies," Choi said during a program on the local SBS radio.

Exports in April grew 27.0 percent from a year ago on solid demand from emerging countries, the fastest since a 28.8 percent annual rise in August 2004, and above a market forecast of a 22.0 percent gain.

That compared with 18.6 percent growth in March and an 18.8 percent increase in February.

April's imports rose 28.6 percent from a year before, above a 26.1 percent growth forecast in a Reuters poll, and accelerating from a revised 25.8 percent gain in March, the Ministry of Knowledge Economy data showed.

South Korea posted a trade deficit of $46 million in April, a fifth consecutive monthly trade deficit, compared with a revised $817 million shortfall in March.

South Korea's last spell of five consecutive monthly trade deficits was in January-May 1997, according to a knowledge ministry official.

The country's financial markets are closed for the Labour Day holiday.

The exports data came a week before the Bank of Korea, which had left interest rates unchanged for the past eight months in a row after seven increases, reviews rates on May 8.

The government's pressure for lower rates presents the central bank, mandated to operate independently, with a dilemma. While it may see a need to support economic growth, it is also charged with keeping inflation at between 2.5 percent and 3.5 percent for 2007-2009.

But it may be difficult for the Bank of Korea to meet the inflation goal as a separate Reuters poll showed April's consumer prices, due at 1:30 p.m. local time, are expected to rise 3.9 percent from a year ago.

Global investors recently bet on higher global interest rates in the belief that major central banks were switching from boosting economies hit by a credit crisis to battling inflation.

The Knowledge Economy Ministry said in a statement that April exports were led by stronger prices of oil products, solid sales of ships and healthy demand mainly from emerging countries including the Middle East.

For the first 20 days of April, shipments to the Middle East jumped 43.9 percent over a year ago and exports to the Latin America rose 28.5 percent, the ministry data showed.

But sales to the European Union fell 2.5 percent and exports to the United States dipped 0.9 percent.

China and the United States combined take in about two-fifths of South Korea's shipments. Electronics and cars make up about 45 percent of all exports.

South Korea is the region's first major economy to report trade figures each month, providing an early clue on the health of global demand for merchandise trade.

The country is home of such global players as Samsung Electronics and Hyundai Motor, with automobiles and electronics accounting for about 45 percent of total exports.