(Updates with more details)
* Exports beat most forecasts, led by China, U.S. demand
* End 10-month spell of double-digit annual losses
* Won hits one-year high, bond futures trim gains
* S.Korea could be first G20 economy to lift interest rates
By Seo Eun-kyung and Yoo Choonsik
SEOUL, Oct 1 (Reuters) - South Korean exports in September fell much less than expected and by the slowest annual pace in 11 months, led by improving demand from China and the United States. and suggesting global trade was picking up.
The numbers, the first batch of monthly trade data to be released by a major exporter, also served to reinforce market expectations that South Korea's interest rates may rise as early as next month and lifted the won to a one-year high.
Overseas sales in September fell 6.6 percent from a year earlier, beating predictions of a 10.4 percent drop in a Reuters poll and ending a 10-month spell of double-digit annual declines, government data showed on Thursday.
The average export value per working day -- a useful measure to judge month-on-month growth -- jumped 16 percent from August to an 11-month high, offering further evidence of improvement.
Sales by destination for the first 20 days of the month -- the latest available -- showed demand from China and the United States rose despite widespread concerns that the fading effect of fiscal stimulus would dampen global trade.
"Exports are on a clear recovery path and they will post positive growth in the fourth quarter helped by the base effect. It is hard to find a major obstacle to recovery," said Kim Jae-eun, an economist at Hyundai Securities.
"The Bank of Korea is expected to raise interest rates in November. What matters is not if the BOK will increase rates but how fast."
Some analysts have been sceptical whether global demand for goods is really recovering, arguing that the effect of a coordinated global fiscal spending spree to stimulate consumption in major economies will soon fade as the funds dry up.
Analysts say the won's sharp drop against most currencies earlier this year has also helped South Korea snatch market share from direct competitors such as Japan and Taiwan.
But the won has been recovering fast since hitting an 11-year low against the dollar in March, on optimism that South Korea's economy is pulling out of the crisis much faster than expected.
ROBUST WON HITS EXPORTERS
The currency's latest rise -- it touched a one-year high against the dollar in morning trade -- pushed shares down in top auto maker Hyundai Motor Co. and other exporters on fears that will eventually cut into profit margins.
Officials have warned that South Korean exporters, though their successful drive to diversify markets helped cushion them from the worst of the global economic downturn, could very quickly lose competitiveness if they rely too much on a weak currency rather than reining in manufacturing costs.
A survey by Markit Economics Ltd showed the South Korean manufacturing sector's business activity kept on expanding in September but the momentum slowed from August.
Exports to China fell 1.9 percent during Sept. 1-20 over a year earlier while sales to the United States lost 7.8 percent, compared with 10.3 percent and 11.3 percent respective declines in August, government data showed.
The strong data came as the government of President Lee Myung-bak, worried about growth, has openly questioned the central bank readiness to raise interest rates to prevent a property bubble, something the Bank of Korea fears will raise household debt and eventually damage consumption.
Improving imports in September also underscored rebounding domestic corporate and household demand on optimism that the economy would sustain its recovery.
Imports in September fell a steep 25.1 percent over a year earlier, but the pace was the slowest in 2009 and below a 26.5 percent drop forecast in a Reuters poll.
Over the past several weeks, money and bond market rates have priced in the chances of the Bank of Korea raising interest rates this year to possibly become the first G20 central bank to tighten since the global credit crunch escalated into a full-blown world economic crisis a year ago. (Editing by Jonathan Thatcher and Tomasz Janowski)