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UPDATE 1-S.Korea fin min signals loosening grip on won

(Updates with dealers, background, rates)

SEOUL, July 23 (Reuters) - South Korea's finance minister said on Friday the government was not seeking to undervalue the won to support exports, signalling authorities may be loosening a policy of holding the currency down.

"The government will not intentionally undervalue the currency to support the exports," Minister Lee Hun-jai told a weekly news conference. The comments showed a marked contrast to earlier comments, when he said authorities would not allow the won to appreciate.

Dealers said the remarks indicated a change in Lee's approach to foreign exchange policy after criticism from economists and dealers that an undervalued won was partly responsible for a prolonged slump in domestic spending.

"It is too early for us to believe for sure that the government's policy has now changed, but clearly the remarks show some change," said a currency dealer at a foreign bank. "Still I would like to see how officials directly in charge of intervention operations behave."

Finance ministry officials said Choi Joong-kyung, chief of the ministry's international finance bureau and the most influential foreign exchange official, had cancelled a planned news conference set for Friday because it clashed with the finance minister's news conference.

South Korea's economy, the third largest in Asia, has been on a tentative recovery path driven by exports since falling into a brief recession in early last year, but stubborn weakness in consumption and investment remains a concern for policy makers.

The won has gained 2.4 percent so far this year against the dollar, whereas the Japanese yen has dropped by more than 2 percent -- leaving the won nearly 5 percent higher against the yen.

The two countries compete in the same export markets for products ranging from computer chips and ships to home appliances and cars.

The finance minister also said Standard & Poor's had informed the government of a decision to affirm the 'A-' sovereign rating on the country.

The ratings agency made an official announcement it was affirming the rating, which was raised in November 2001, at about the same time.