SKorea markets hopeful ahead of summit with North

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SEOUL, Oct 1 (Reuters) Seoul financial markets are hoping this week's rare summit between North and South Korea will throw up some major projects across the border for local companies to get their teeth into.

And anything that reduces tension on the peninsula, whose two halves have technically been at war for more than half a century, could help lead to a ratings upgrade for South Korea, boosting its won currency and bonds.

But analysts are also keeping modest about their expectations of what might come out of only the second ever summit from Oct. 2-4 between leaders of the two countries.

''What markets most want is some kind of news about economic cooperation projects since that would boost some of the sectors that would be involved, although the summit will not have a huge impact in the broader stock market,'' said Kim Joong-hyun, an analyst at Goodmorning Shinhan Securities.

One project that has been floated is revitalising North Korea's port of Nampo, which serves the capital Pyongyang.

Major construction contracts would likely go to South Korean builders.

South Korea also wants to develop joint economic zones in the North where its companies can exploit cheap labour and land. Beneficiaries would likely include utility Korea Electric Power Corp <015760.KS> (KEPCO), which would provide power, the Hyundai affiliate Hyundai Asan, which is already on the ground in the North.

The Hyundai Group runs tourism and industrial park projects in the North, and shares in units such as shipping firm Hyundai Merchant Marine Co <011200.KS> tend to benefit from increased inter-Korean ties.

Textiles firms such as Shinwon <009270.KS> have plants in North Korea, while state-run power provider KEPCO is involved in power development projects in the reclusive state.

But if South Korean President Roh Moo-hyun can persuade North Korea's leader Kim Jong-il to open up the economy of just over 20 million people more, analysts say the sectors most likely to benefit could be construction, agriculture, tourism, and certain energy firms.

''If the time comes when North Korea decides to open up to foreign investment, then the (South) Korean market will take on a very bullish tone, because investors will realise that Korean companies are the best qualified,'' said Mark Mobius at Franklin Templeton Investments during a recent news briefing in Seoul.

A breakthrough in decreasing the risk of war on the peninsula could also be rewarded by an upgrade from one of the credit ratings agencies.

Standard and Poor's, for example, has kept its rating on South Korea at A since July 2005, citing the risk posed by North Korea as the single largest negative factor.

''Any communication between North and South is a net positive. It's like when you have a girlfriend or wife.

Communication is better than fighting. From that perspective, that's good news,'' said Markus Rosgen, chief Asia strategist at Citigroup.

Reuters MP VP0745

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