S.Korean recovery moderates, dims chances of rate rise

* Manufacturing sector up in Oct, but pace slows: survey

* President Lee: more time needed for economic recovery

* Consumer price, housing price growth slows in Oct

* Interest rates seen steady for rest of 2009

By Yoo Choonsik

SEOUL, Nov 2 - South Korean manufacturing, trade and price data for October suggested its economic recovery was moderating, making the authorities increasingly likely to postpone any interest rate increase until next year.

A survey showed on Monday the export-led manufacturing sector grew in October but at a slower pace than in the previous month, while housing and consumer price data indicated lessening inflationary pressures. The figures followed Sunday's trade report that showed exports to advanced economies fell by nearly a third over a year earlier.

The data played into the hands of President Lee Myung-bak, who has long argued that Asia's fourth-largest economy is not ready yet for a withdrawal of policy stimulus deployed at the height of the global financial crisis.

"It will take a little longer until our economy recovers the virtuous circle between domestic spending, investment and employment," Lee said in a speech, delivered to parliament by his prime minister.

"We depend heavily on the external environment (for economic growth) and it is difficult for us to overcome the crisis on our own before the world economy recovers," he added.

The HSBC/Markit South Korea manufacturing purchasing managers' index fell to a seasonally adjusted 52.5 in October from 52.7 in September. A reading above 50 means the sector's business activity expanded during the month. [ID:nSEW000174]

Government data showed on Sunday that exports to the United States fell steeply from a year earlier in October, with scepticism among investors that the stimulus spending-led recovery in global trade can be sustained. [ID:nSEO73164]

December treasury bond futures <KTBc1> rose as much as 0.30 point on the day as investors saw the data as further dampening chances the central bank will raise interest rates this year from their current record low.

"Since the recent recovery was mainly driven by inventory adjustments and the outlook remains uncertain, policymakers would stay cautious until the jobs market, the spark of private demand, turns around," said Yoon Yeo-sam, a fixed-income analyst at Daewoo Securities.

The Bank of Korea should also be heartened by easing inflation pressures, with annual inflation easing to 2.0 percent in October from 2.2 percent in September. [ID:nSEV002892]

Data released by the country's top lender also showed that although housing prices rose for a seventh consecutive month in October from the previous month but the pace slowed for the first time during the period. [ID:nSEV002891]

The Bank of Korea had warned in August and September it may have to raise interest rates if property prices kept growing. But in October it softened its tone, saying prices were stabilising following government lending controls.

It held the benchmark 7-day repurchase agreement rate <KROCRT=ECI> steady at record-low 2.0 percent for eight consecutive months and next reviews it on Nov. 12.

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http://graphics.thomsonreuters.com/119/AS_PMI1109.gif (Additional reporting by Seo Eun-kyung; Editing by Jonathan Thatcher and Tomasz Janowski)