* KOSPI falls on selling by foreigners, institutional investors * KOSPI expected to recoup losses over next few days -analyst SEOUL, June 21 (Reuters) - South Korean shares slipped to a 3-week low early on Wednesday as foreign investors turned somewhat bearish following MSCI's 's decision to add China's mainland-listed shares to its global indexes and as oil prices slumped. The Korea Composite Stock Price Index (KOSPI) was down 0.4 percent at 2,359.97 points as of 0213 GMT, after touching 2,346.19, the lowest since June 1. "Declines in oil prices and China equities joining the global index are discouraging foreign investors now," said Kim Ye-eun, a stock analyst at Cape Investment & Securities. "Apart from the IT sector, all major blue chips seem to be edging down. Shares will decline broadly but will recoup towards the end of this week as China domestic equities joining the MSCI index is a temporary issue," Kim said. A senior government official said the South Korean share market could see outflows of up to 4.3 trillion won ($3.78 billion) after the U.S. index provider said it will add domestic Chinese equities to its widely tracked Emerging Markets Index . While the inclusion could draw billions of dollars to China's A shares and decrease South Korea's weight in the index, most analysts expect the overall impact won't be significant on Seoul equities as the benchmark KOSPI is a highly liquid market. Indeed, the government said Seoul shares are likely to shrug off an outflow of few trillion won, as the total market capitalization of stocks listed on the benchmark main KOSPI is at 1,536 trillion won as of the closing on June 20. Foreign investors net sold 100.5 billion won ($88.24 million) worth of KOSPI shares near mid-session, while institutional investors offloaded 72.4 billion won, which dragged down the index. Market heavyweight Samsung Electronics lost 1.9 percent while Hyundai Motor was down 1.8 percent. The South Korean won dropped to a two-month low. The won was quoted at 1,141.2 against the dollar, down 0.5 percent versus Tuesday's close of 1,135.4. 0213 GMT Prev close Dollar/won 1,141.2 1,135.4 Yen/won 10.2515 10.2362 *KTB futures 109.43 109.44 KOSPI 2,359.97 2,369.23 * Front-month futures on three-year treasury bonds ($1 = 1,138.9000 won) (Reporting by Cynthia Kim; Editing by Shri Navaratnam)