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By Kim Kyoung-wha
SEOUL, July 30 (Reuters) - South Korea's industrial output and current account took bigger-than-expected hits during June's co-hosting of the World Cup finals, likely giving the boot to any rate hike by the Bank of Korea, economists said on Tuesday.
Football fever and auto worker strikes that hurt June output were seen as temporary factors, though economists saw risks ahead for the country from shaky global markets.
"One-off factors drove last month's decline," said J.P Morgan economist Lim Ji-won, adding there could be an output rebound this month.
"On the output side, there would be some positive payback in July," she said. "But policy makers should brace for potential fallout from global financial market uncertainties."
South Korea's top two automakers struggled with partial strikes in June blamed for 800 billion won ($675 million) in delayed production.
SURPRISE DROP
June output fell for the first time in four months, down a provisional 3.6 percent month-on-month after a 0.5 percent rise in May, the National Statistical Office (NSO) said in a statement.
That was worse than a 2.9 percent drop forecast by economists in a Reuters survey of 10 brokerages and research institutes on Monday.
Output rose 5.4 percent from a year earlier after a 7.7 percent jump in May.
"Production slowed due to the fallout from auto strikes and as the World Cup and elections cut into working days," the NSO said.
The month-long World Cup soccer finals, hosted by South Korea and Japan, disrupted companies as workers took time off to watch matches or were forced to leave work early as millions of fans clogged streets, making subways and buses inaccessible.
South Korea's semiconductor output in June jumped 36 percent, but strikes at Hyundai Motor and Kia Motors chopped automobile output by 20.1 percent from a year earlier, the NSO said.
June's current account surplus fell to $822.5 million from $1.05 billion in May, mostly on lower gains on overseas assets and higher offshore interest payments, the NSO said.
The World Cup hit the current account as fewer Japanese tourists made summer shopping visits, widening South Korea's travel deficit by 10 percent to $378 million.
Korea's first-half current account surplus fell to $3.57 billion from $6.53 billion a year earlier, in line with the central bank's 2002 forecast of $5 billion.
STEADY RATES
As the numbers were released, comments by Bank of Korea deputy governor Park Cheul over breakfast with executives added to expectations that South Korea, just weeks ago seen considering a rate hike, would hold rates steady.
"We will maintain the current monetary stance, while closely monitoring the external situation," Park said. "Our policy is to stick with the current one and to keep close tabs on the external situation."
The Bank of Korea kept its key short-term interest rate target at a record-low four percent for eight months but bumped it up to 4.25 percent in May to curb rising household debt.
"It is inevitable that local markets price in U.S. financial woes for now but corporate reform and a flexible monetary policy will help accelerate a decoupling from wobbly U.S. markets," the central bank's Park said.
Policymakers have generally been applauded for policies that have supported growth since last year, when South Korea, unlike many Asian peers, averted recession.
Economists said negative external factors posed risks, however, citing a 20 percent drop in local share prices since April fueled in part as U.S. investors bail out of funds, forcing their managers to pull money out of the market.
"There is indeed a risk of deceleration in growth... which is likely to provide the grounds for the Bank of Korea to (hold off an interest rate hike) over the coming months," said Desmond Supple, head of Asia research at Barclays Capital in Singapore.
"Risks are stemming from a fall-off in external demand."
Domestically, he said, uncertainty ahead of a December presidential election and government efforts to dampen a booming housing market could cool growth.
Tuesday's disappointing June figures did little to slow Seoul's main stock index , which rose 3.39 percent in line with a surge in U.S shares.
The Korean won -2 softened in line with the Japanese yen, while key bonds fell.
(US$1 = 1185.0 won)
(Additional reporting by Nam In-soo, Kim Yeon-hee and Maria Golovnina)