Seoul shares inch up, but caution limits gains

* Investors remain wary over euro zone debt crisis

* Hanwha Chemical rallies after dropping acquisition plan

* Retailers hurt by weak sales data

By Jungyoun Park

SEOUL, Sept 20 (Reuters) - Seoul shares edged higher on Tuesday as battered technology issues and shipbuilders bounced, but gains were limited amid caution after Standard & Poor's cut its ratings for Italy, renewing fears about the euro zone debt crisis.

The Korea Composite Stock Price Index (KOSPI) was up 0.27 percent at 1,825.88 points as of 0203 GMT.

"Market players are growing cautiously hopeful that given the urgency of the latest events in Europe, some measures, packages or both may be addressed pretty soon," said HI Investment & Securities market analyst Kim Seung-han.

International lenders told Greece on Monday that it must shrink its public sector to avoid running out of money within weeks.

Meanwhile Standard & Poor's downgraded its ratings on Italy by one notch to A/A-1 and kept its outlook at negative, a move that threatens to add to concerns of contagion in the debt-stressed euro zone.

Hanwha Chemical Corp jumped 5 percent after the company said it had abandoned a plan to buy Indonesian chemical producer Sulfindo Adiusaha, confirming an earlier report by Reuters.

STX Corp rose 1.2 percent after the company said on Monday that it had decided to pull out of its bid for Hynix Semiconductor Inc , throwing the potential deal worth 3.1 trillion won ($2.7 billion) into uncertainty.

Technology issues bounced following their latest sharp falls.

Samsung Electronics Co Ltd , the world's No.1 memory chip maker, rose 0.9 percent, and LG Display Co Ltd advanced 2.9 percent.

Shipbuilders also rose firmly, with Daewoo Shipbuilding & Marine Engineering Co Ltd advancing 1 percent and Samsung Heavy Industries Co Ltd up 1.1 percent.

Retailers struggled after data showed sales growth at top department stores softened in August from July, while that for non-food items hit an 11-month low, adding to signs of cooling in Asia's fourth-largest economy.

Shinsegae Co Ltd , South Korea's No.2 retailer, shed 1.9 percent and Hyundai Department Store Co Ltd lost 2.3 percent.

Airlines and tour counters were hit by a gloomy economic outlook and the latest weakening in the won , which damps demand for overseas trips. Weakness in the won also renders the cost of importing jet fuel more costly.

Korean Air Lines Co Ltd , the country's top air carrier, declined 1.3 percent, and Modetour Network Inc , a major tour agencies, lost 1.4 percent.

($1 = 1137.300 won) (Editing by Chris Lewis)