Seoul shares up 5.2 pct pension funds pile in

(Updates to afternoon)

By Park Jung-youn

SEOUL Oct 28 (Reuters) - Seoul shares reversed an early 5 percent loss to be sharply higher by Tuesday afternoon, as pension funds piled back into the market to snap up value at levels analysts said were too cheap to ignore.

The Korea Composite Stock Price Index .KS11 was up 5.2 percent to 996.34 points as of 0527 GMT, after falling to 901.49 points earlier in the morning trade. At the day's low KOSPI was some 53 percent down on the year.

Traders said rises of up to 1.5 percent in U.S. stock futures and strong gains in neighbouring Asia share markets such as Tokyo and Hong Kong were adding impetus to Seoul's advance.

"Despite the ongoing concerns about economies and such, investors are slowly getting the idea that shares at the current levels are affordable. Also gains in regional markets helped," said Kim Seong-joo, a market analyst at Daewoo Securities.

Japan's Nikkei .N225 was up 1.8 percent and Hong Kong's Hang Seng .HSI was up 6.1 percent as of 0501 GMT.

Domestic institutions bought a net 225 billion won ($151.5 million), with pension funds picking up a net 128 billion won, although foreign investors stuck stubbornly on the sell side.

"Pension funds are steadily buying into shares, and other domestic institutions including brokerages and insurers are picking up bargains among the debris," said Kim Seong-bong, a market analyst at Samsung Securities.

Earlier on Tuesday South Korea's state-run National Pension Service said: "Now the KOSPI is near a bottom. If we buy now with a three to five-year horizon, we can make profits, so we have started buying."

Hynix Semiconductor (000660.KS) was trading 15 percent higher and Hyundai Motor (005380.KS) was up 7.4 percent. LG Electronics (066570.KS) was up 12.23 percent.

Samsung Electronics (005930.KS) also rose 8.11 percent, also helped by a ratings upgrade from UBS from sell to neutral.

However shares in banks continued to trade lower as worries about their liquidity persisted.

"Investors are worries about their capital raising capacity as it becomes increasingly harder to raise foreign money, while domestic liquidity is also drying up," said Kim Won-yeol, an analyst at KTB Investments.

"Even if the Bank of Korea has cut the base rate, market rates still remain high," Kim added.

Shares in KB Financial Group (105560.KS) were down 5.88 percent and Shinhan Financial Group was trading percent 3.33 lower. Hana Financial Group (086790.KS) fell 3.13 percent.

($1=1485.4 Won)

(Editing by Keiron Henderson)