(Adds analyst comments, details)
By Kim Myong-hwan
SEOUL, March 28 (Reuters) - South Korean industrial output rose weakly in February, confirming a trend of sagging growth as other data released on Friday showed domestic consumption slumping from a year earlier in its sharpest fall since 1998.
"The big concern is that local consumption is cooling rapidly and the trend will continue for a while as long as uncertainties over the Iraqi war and concerns over a weak economy persist," said Kwon Soon-woo, chief economist at Samsung Economic Research Institute.
Strong exports helped February industrial output to rise a provisional 0.4 percent from the previous month's level, after falling 1.1 percent in January, the National Statistical Office (NSO) said.
The monthly reading, adjusted for seasonal factors, was well below an average forecast for a 1.1 percent rise in a Reuters survey of 10 economists conducted on Wednesday. And it showed a weakening trend from the monthly growth of 1.2 to 1.8 percent seen in late 2002.
"In short, output was helped by brisk exports, but domestic demand remained weak," said Yoon Myong-joon, director of NSO's industrial statistics division.
South Korea unveiled on Thursday a package of measures aimed at shielding a slowing economy and targeting increased investment, but with no drastic fiscal or monetary measures.
Seasonally unadjusted output was 10.2 percent stronger in February than it had been a year earlier, versus the 3.5 percent 12-month rise seen in January and a 0.8 percent fall in February 2002, the NSO said.
Economists said the output comparison from a year earlier was skewed because a strike at electricity monopoly Korea Electric Power Corp (KEPCO) in February last year had hampered industrial production.
Robust exports of semiconductor chips and automobiles helped output recover last month, the NSO said, while production in January was also affected by lunar New Year holidays.
CONSUMPTION SAGS
Underscoring signs of subdued consumer confidence, February wholesale and retail sales dropped 1.8 percent from a year earlier, the biggest fall since December 1998, when sales fell 3.6 percent.
Hit by concerns over consumption, the key stock index fell 0.52 percent, while three-year benchmark treasury yields dropped four basis points to 4.57 percent and the won slipped.
So Jae-yong, an economist at Daehan Investment Trust and Securities, said: "Given the fall in consumption, indicated by wholesale and retail sales data, and depressed investment sentiment, I would say the economy is skewed toward the downside in months to come."
Exports, which supported Asia's fourth largest economy in the face of receding domestic consumption, could lose steam if the U.S.-led campaign in Iraq and diplomatic impasse over North Korea's suspected nuclear aims dragged on, economists said.
Geopolitical risks and a package of measures South Korea began to implement last October to tackle property bubble and curb household debt have helped sour domestic demand.
The NSO said ex-factory shipments for exports in February had risen 10.3 percent from a year earlier, while those for the domestic market increased 6.6 percent.
In another sign that growth in the economy is slowing, February capital investment was down 4.0 percent on a year earlier, following a sharp 7.7 percent fall seen in January.
South Korea's central bank has been under pressure to cut its 2003 economic growth target of 5.7 percent due to geopolitical risks. The country's gross domestic product grew 6.3 percent in 2002. (Additional reporting by Kim Kyoung-wha, Kim Yeon-hee, Oh Jung-hwa, Judy Lee)