(Adds details, analysts, backgrounds)
By Cheon Jong-woo
SEOUL, March 1 (Reuters) - South Korean exports in February sank 17.1 percent, half as much as their drop in January, but overseas sales are expected to keep falling as consumers and companies cut spending amid a worsening global economy.
South Korea is home to the world's leading producers of computer chips, mobile phones and ships and is the first big Asian exporter to report trade data each month, providing an early indication of the state of global demand.
"As more countries are suffering from the recession, it is difficult to say that exports has hit a bottom yet. Exports are likely to continue falling around 30 percent (from a year ago) until the end of the first half," said Ryu Seung-sun, an economist at HMC Investment Securities.
"Exports may improve in the second half, possibly posting small (year-on-year) growth in the fourth quarter, but that is simply a hope rather than an expectation," he added.
The trade data will likely reinforce expectations that South Korea's central bank will cut interest rates at its March 12 policy meeting to help bolster domestic demand and cushion slumping exports.
Since October, the Bank of Korea has slashed rates a total of 3.25 percentage points to a record low of 2.00 percent.
February exports from Asia's fourth-largest economy slid 17.1 percent from a year ago, slightly better than market forecasts, after dropping a revised 33.8 percent in January, according to the customs agency's website.
The weaker won
But analysts said the apparent improvement in the export trend was largely because the Lunar New Year holidays fell in January this year while the holidays were in February in 2008, adding exports were likely to drop further in coming months.
South Korean exports in the first two months of the year combined fell 25.6 percent from a year ago, according to Reuters calculation based on the customs agency's data.
Japan, China and a number of other export-driven economies have also reported a sharp fall in trade in recent months on worsening consumer demand in the United States and Europe.
South Korea's economy suffered its second-biggest contraction on record in the final quarter of 2008, pushing it towards its first recession since the Asian financial crisis.
Imports in February dropped 30.9 percent from a year ago, helping the country's trade balance swing to a surplus of $3.29 billion from a $3.36 billion deficit in January, according to figures seen on the customs agency's website (http://www.customs.go.kr).
Economists surveyed by Reuters had forecast South Korean exports in February would fall 16.8 percent over a year earlier while imports would slide 25.5 percent. [ID:nSEO204768]
SHORT-TERM RELIEF FOR WON
The turnaround in the trade balance, along with prospects
for further surplus on weaker imports, can provide some
short-term relief for the won
But the local currency is seen remaining soft due to worries over a domestic dollar shortage and jittery global markets, analysts said.
"We are unlikely to see foreign fund inflows rising, given concerns on the global financial sectors," said Kim Jae-eun, an economist at Hana Daetoo Securities.
South Korea's current account is expected to turn to a surplus of $22 billion in 2009 from a $6.41 billion shortfall last year, the central bank said.
The Ministry of Knowledge Economy, which is in charge of the country's trade, sees a only 1 percent growth in exports and a 4.7 percent fall in imports, which will generate a $11.9 billion trade surplus.
(For more stories on how the global trade slump is hitting export-reliant Asian economies, click on [ID:nSP434417]) (Editing by Kim Coghill)