* Government revives bond sale as credit markets stabilise
* Economy may be bottoming but dollar needs still acute
* Guidance for $1 bln in 5-yrs at around T+400 bps-sources
* Guidance for $1 bln in 10-yrs at around T+437.5 bps-sources
* Orderbook at $2 bln as of Asia early evening (Updates with amounts of orders received in graf 10)
By Rafael Nam and Yoo Choonsik
HONG KONG/SEOUL, April 7 (Reuters) - South Korea aims to raise $2 billion in its first dollar-denominated debt sale since 2006, sources said, as its need for dollars sparks the country's return to foreign markets after an aborted sale last year.
South Korea has been emboldened by a recovery in its domestic
bond and equity markets from the turmoil early last month, when
the won
A rally in global credit markets has also improved investor demand for riskier assets from Asia and other emerging markets despite a flood of gloomy economic news. Indonesia and the Philippines raised a combined $4.5 billion in overseas debt this year while Abu Dhabi last week launched a $3 billion bond sale.
Analysts said recent indicators which hinted Asia's fourth-largest economy may be turning the corner and improvement in its external balance of payments also boded well for its first global dollar-denominated deal since 2006, though concerns about the health of its banking system and economy remain.
"The external position has turned far less negative and the global market sentiment has improved quite a lot compared to early March. This is well timed," said Young Sun Kwon, an economist at Nomura International in Hong Kong.
However, South Korea is marketing its debt amid a deluge of debt worldwide from governments looking to pay for massive economic stimulus measures. It is also competing for investor attention against private sector issuers in some countries who are armed with government guarantees.
That is creating a tussle between issuers looking to keep their borrowing costs down and investors who are looking for bigger premiums, especially from emerging markets which are generally considered riskier even if their economies are showing signs of bottoming out.
South Korea has set price guidance for its five-year note at around 400 basis points over U.S. Treasuries, and at around 437.5 basis-point for the 10-year note, said one source, who was not allowed to talk publicly about the sale.
That matches earlier indications reported by Reuters.
The country has set a goal of raising $1 billion per tranche, said a separate source, adding South Korea had already received $2 billion in orders as of early Asia evening.
Pricing is set for Wednesday morning during U.S. hours, and the issuer will continue to receive orders from U.S. and European investors.
Investors said the pricing seemed fair, though they added Hana Bank's $1 billion government-guaranteed bond sale last week offered bigger concessions relative to existing debt, while some were spooked by a $1.5 billion sale from blue chip Hutchison Whampoa <0013.HK> that fizzled in its trading debut.
"It presents a modest pick-up to the current South Korean sovereign curve, so it should be successful, but it won't be a hot issue," said Scott Bennett, Head of Asian credit for Aberdeen Asset Management in Singapore.
WORST MAY BE OVER
The deal marks a return for South Korea after it scrapped a $1 billion sale of 10-year notes right before the implosion of Lehman Brothers investment bank last September, after the government could not agree on pricing with investors.
A successful sovereign bond sale this time would establish a fresh pricing benchmark for South Korean debt, helping its companies and banks to tap overseas debt markets for funds as they battle the worst global financial crisis in decades.
South Korea has taken a series of steps since last year to ease fears of a dollar crunch and cushion the impact of the global slowdown on its banking system and economy. On Tuesday, it said it would extend its government debt guarantee for financial firms' borrowing abroad. [ID:nSEO155641]
South Korea has registered with the U.S. Securities and Exchange Commission to sell up to $7 billion in debt this year.
But it will still be a painful year.
Exports continue to slump, albeit at a slower pace, and South Korea has officially forecast a 2 percent drop in its economy in 2009, though private analysts expect a bigger contraction as the global economic crisis is unlikely to ease at least until later this year.
South Korea's last sovereign sale was in November 2006 via the sale of about $1 billion in a dollar- and euro-denominated tranche.
Citigroup