(Recasts with manufacturing data, housing price)
By Yoo Choonsik and Cheon Jong-woo
SEOUL, March 2 (Reuters) - South Korean manufacturers cut inventories at the second-fastest pace since 1998 in January and idled the most production in three decades in the latest signs of their increasing anxiety about global demand.
Factories left almost 40 percent of production dormant in January and a sharp fall in imports in February trade figures, led by production equipment and materials, underlined their doubts that demand would pick up.
Like other Asian exporters, South Korea has been hit hard by the slump in global demand and it posted a record fall in goods sold abroad in January.
"The decline in inventories is the result of companies having stopped production and relying on existing inventories -- another sign that we are truly in the middle of a severe downturn," said Lee Sung-kwon, economist at Goodmorning Shinhan Securities.
"We expect output to decline even more over the coming months. A bottom could be reached at the end of the first half or in the third quarter," he said.
Analysts said manufacturers would not start restocking their depleted inventories until they become confident the global economy is turning around and that could be months away at best.
The official data on Monday put authorities under pressure to do more to stimulate economic activity and added to the case for the central bank to cut interest rates on March 12 for the seventh time since the global financial crisis blew up in October.
That prospect pushed Korean government bond futures to turn higher from early losses.
Data from the country's statistics office showed industrial production unexpectedly rose in January by a seasonally adjusted 1.3 percent, when a decline had been expected.
But inventories fell 3.5 percent -- the second-biggest drop since late 1998 after a 6.6 percent fall in inventories in December, the National Statistical Office said.
Factories operated at just 61.5 percent of capacity in January, the lowest level since September 1980.
Separate figures from the Knowledge Economy Ministry showed exports in the first two months of 2009 tumbled 25.6 percent from a year earlier, while imports for the two-month period slid by a sharper 31.4 percent.
LIKELY IN RECESSION ALREADY
"The global economic situation is still very difficult. We forecast a continued decline in exports into the third quarter, with a positive turnaround possible from the fourth quarter," said Lee at Goodmorning Shinhan Securities.
Combining the January-February figures smooths over the distorting effect of the Lunar New Year holidays, which occurred in January this year but in February in 2008.
In February alone, exports fell 17.1 percent from a year earlier, compared with a record fall in January of 33.8 percent. Imports dropped 30.9 percent in February, following a 31.9 percent fall in January.
South Korea is the first major Asian economy to report monthly trade figures, providing an early indication of the strength of global demand and the prospects for the region's other export-dependent economies.
It sends around one-third of its total exports to China and the United States and about 14 percent to the European Union, its second largest individual market after China.
Electronics and cars accounted for about 40 percent of the country's total exports last year.
The economy contracted by a seasonally adjusted 5.6 percent in the fourth quarter of 2008 from the previous quarter, the second-worst on record.
Senior central bank officials have agreed privately that the economy will shrink again in the first quarter, a view private-sector analysts have held for some time. That would meet the common definition of recession, being two consecutive quarters of economic contraction.
As if to underline that view, data from Kookmin Bank, the country's top lender, showed house prices fell in February for a fifth consecutive month, marking the longest losing streak in four years. (Editing by Neil Fullick)