* C.bank keeps rates at record-low 2 percent as expected
* On hold for 5th month as economy only on nascent recovery
* Governor says to upgrade 2009 economic growth forecast
* Governor says economic outlook still uncertain (Recasts with governor's comments, inflation data, markets)
By Seo Eun-kyung
SEOUL, July 9 (Reuters) - South Korea's central bank held interest rates at a record-low 2 percent for a fifth straight month and signalled that rates would stay where they are for now as inflation and economic growth may remain slow for some time.
The head of the central bank said higher mortgage lending and a potential rise in inflationary pressure from rising oil prices deserved a close watch. But investors viewed the remarks as having no impact on policy in the short run, driving up bond futures.
"The economy will keep expanding throughout the second half of the year but the pace will be very slow," Governor Lee Seong-tae told reporters.
All economists polled ahead of the central bank's decision had predicted rates to stay on hold this time and the majority expects no rate rise before the end of this year.
The governor also said the bank would upgrade its 2009 growth view, a GDP decline of 2.4 percent, when it releases revised forecasts on Friday, but added that the outlook for the year remained uncertain.
Analysts said renewed doubts about the global economy's health and a lack of immediate inflation threats would persuade the Bank of Korea to keep the 7-day repurchase agreement rate at 2.0 percent for an extended period.
"After all, investors welcomed his comments today because they showed no change in his view that economic growth and inflation trends were still very weak," said Kong Dong-rak, a fixed-income analyst at Taurus Securities.
September treasury bond futures jumped 41 ticks to 110.44 by 0330 GMT as investors were relieved by the lack of indications for an immediate change in the easy monetary policy.
Central bank data on Thursday showed the annual rate of producer price inflation hit a 10-year low in June with the price index down 3.1 percent over a year ago.
LEADERS SAY ECONOMY STILL IN PERIL
The widely expected decision by the Bank of Korea came after leaders of the Group of Eight industrial nations agreed that the global economy's recovery was not yet assured and that it is too soon to unwind stimulus packages.
The Bank of Korea cut the rate by a total of 3.25 percentage points since the collapse of Lehman Brothers in mid-September wreaked havoc on global financial markets.
But speculation has been increasing recently among investors and analysts that central banks in several Asian economies on a faster recovery could start to tighten up their policy even before the U.S. Federal Reserve changes its own.
The government and investment banks have upgraded their economic growth forecasts for this year, citing an earlier and more solid recovery in exports and domestic demand than initially thought.
Analysts also said the recovering property market and growing mortgage lending could emerge as a big headache for the central bank, although it probably considers raising interest rates as its last option.
"I think the pace of growth in home-backed lending is fast," Governor Lee said. "We need to keep a careful watch over rising home prices and growing home loans."
Central bank data showed on Wednesday that bank lending to households rose the most in two and a half years in June over the previous month, led by home-backed borrowing. (Writing by Yoo Choonsik; Editing by Jonathan Hopfner & Jan Dahinten)