By Se Young Lee and Choonsik Yoo
SEJONG, South Korea, April 1 (Reuters) - Hopes grew in South Korea on Monday for a government stimulus package and an interest rate cut, after weak export and import figures and soft price data showed Asia's fourth-largest economy sliding further towards stagnation.
Exports in March rose by just 0.4 percent from a year earlier as the weaker yen hurt South Korean automobile exporters in fierce competition with the Japanese, while imports fell 2.0 percent as domestic demand stayed depressed.
Other data published on Monday, including a private-sector survey of manufacturers and housing market figures, suggested the economy might recover gradually, but the yen's sharp fall and a turbulent euro zone clouded those prospects, highlighting the need for quick policy action.
Since taking office in late February, South Korean President Park Geun-hye has promised that her government would boost domestic consumption.
'The export recovery was going to be gradual anyway, and that's being set back further by Japan,' Lee Chul-hee, chief economist at Tong Yang Securities, said of the yen's decline.
'So at this point it would be more sensible to focus policy on boosting domestic demand,' Lee added.
The yen has slid nearly 20 percent against the U.S. dollar since November, largely in response to the dramatic monetary expansion campaign led by Prime Minister Shinzo Abe, known widely as 'Abenomics'.
South Korea, the world's seventh-largest exporter and home to some global suppliers of smartphones and cars, relies heavily on overseas sales for economic growth but there is little it can
do to counter current weak demand for its exports.
Last week, Park's government emphasised in its first comprehensive economic policy guidelines that it would not aim for unrealistically high economic growth but instead focus policies on cementing fundamentals for a sustainable recovery.
The government slashed its 2013 economic growth forecast to 2.3 percent from 3.0 percent set three months ago under Park's predecessor, Lee Myung-bak, citing the delayed recovery in global demand and a new threat from the depreciating yen.
It plans a supplementary budget bill, expected by analysts to be worth at least 12 trillion won ($10.8 billion) although not all of it would be for additional spending. It also plans to take measures to reform housing market practices.
Later on Monday, the government announced a widely expected policy package aimed at boosting property market transactions, representing the first of a string of measures in the coming weeks to boost domestic demand.
The plan centres around expanding support for first-time home buyers or home purchases by lower-income earners and providing financial help for the home owners suffering from heavy debt related to their home ownership.
'We believe that a policy package of this magnitude will be able to give a proper signal for market normalisation,' Seo Seung-hwan, Minister of Land, Infrastructure and Transport, told a news conference.
Analysts and market participants widely expect the Bank of Korea to align monetary policy to the government's growth-boosting steps with an interest rate cut. It has held the policy interest rate for the past five months after two reductions last year and next reviews its policy on April 11.
Other data on Monday showed annual inflation unexpectedly eased to a 7-month low of 1.3 percent in March from 1.4 percent in February, led by declines in fresh food prices due to better supplies, while weak consumer demand discouraged producers from raising prices.
There were some bright spots among Monday's indicators, most notably a survey by HSBC/Markit Economics showing the manufacturing sector expanded by the most in a year in March and export orders rose by the sharpest in two years.
Housing prices also halted a sequence of month-on-month falls that had lasted for eight months, according to data from the country's top mortgage lender, Kookmin Bank, although home prices were 0.7 percent lower in March than a year before.
($1 = 1112.6000 Korean won)
(Editing by Eric Meijer & Kim Coghill) Keywords: KOREA ECONOMY/INFLATION
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