(Adds commerce minister, c.bank data and updates markets)
By Kim Kyoung-wha
SEOUL, Jan 30 (Reuters) - Strong exports of memory chips and autos drove South Korean industrial output up an unexpectedly strong 2.7 percent in December, providing further evidence the economy is on the mend.
Friday's upbeat data followed more optimistic consumer confidence figures that also pointed to a recovery this year in Asia's fourth-largest economy, after a credit crunch helped push the country briefly into recession last year.
The economy, however, was unlikely to see a broader upturn until a snail-paced recovery in domestic spending and investment gained pace in the second half, economists said.
"Exports are faring very well which is providing a cushion to sluggish local consumption and business investment," J.P. Morgan economist Lim Ji-won said. "But it will take some time until we see consumers actually open their wallets and spend."
Commerce Minister Lee Hee-beom told a business lunch the economy had yet to make a broad-based recovery because corporate investment remained in the doldrums.
The seasonally adjusted monthly reading from the National Statistical Office topped a median forecast for 1.5 percent growth in December in a Reuters poll. It followed a fall of 0.4 percent in November.
In December, output of chips soared 44 percent from a year earlier and production of automobiles jumped 13.4 percent, driving top-line production higher, the statistical office said.
Finance Minister Kim Jin-pyo said he expected every month's exports this year would be at least 10 percent higher than a year earlier.
The strong data hit bonds. The yields on three-year treasuries rose three basis points to 4.95 percent.
CONSUMER RECOVERY?
"Soaring exports of chips, mobile phones and autos boosted industrial activity for December, while a deceleration in consumption and investment slowed," the statistical office said in a statement.
Exports, so far the sole growth engine, were a powerful 32.5 percent higher in December than a year earlier, at $19.9 billion.
Economists said labour strife showed signs of intensifying ahead of an April general election. That could dampen appetite for business investment.
Ssangyong Motor Co workers have threatened to strike each Wednesday until February 24 to oppose a planned sale to a Chinese chemical firm. Workers at Kia Motors Corp struck to demand management reinstate a sacked union leader.
Some bullish economists have taken their cue from recent data that suggested domestic consumption might have seen the worst as concerns over the ailing credit card sector recede.
A key consumer sentiment index, measuring how consumers feel about economic prospects and future spending, rose to its highest in 10 months in December, government data showed.
Household lending is also accelerating, driven by a rise in mortgage loans, central bank data shows.
But the statistical office said domestic spending, spooked by a crackdown on ballooning household debt and credit card spending as well as a big corporate scandal, remains weak. Wholesale and retail sales declined 1.5 percent in December.
A business online news agency, eDaily, quoted an executive from ratings agency Standard and Poor's as saying South Korea needed to show persistent reform to achieve a ratings upgrade.
Ignoring seasonal factors, output grew 10.4 percent in the year to December, accelerating from a rise of 4.5 percent in the year to November. Industrial output for 2003 rose 5.0 percent, versus an 8.0 percent increase in 2002. (Additional reporting by Lee Shin-hyung)