UPDATE 2-POSCO falls as Vietnam firm drops steel JV

(Adds POSCO shares, details)

HANOI, June 23 (Reuters) - Vietnam's state-run shipbuilder Vinashin has cancelled plans to invest $1 billion in a $5 billion steel venture with South Korea's POSCO (005490.KS), sending shares in the world's fourth-largest steel maker down 3 percent.

The decision, part of Vietnamese government efforts to cut spending to reduce inflation running at 25 percent, is an additional blow to POSCO, which has seen a $12 billion plan to build steel mill in India delayed by frequent protests.

A POSCO spokesman told Reuters the company would proceed with the steel mill plan on its own.

Shares in POSCO dropped 2.4 percent to close at 539,000 won after falling to 533,000 won, lagging a 0.9 percent drop in the broader market .

In January, Vietnam approved POSCO's proposal to build the steel mill in Van Phong Bay, near the south-central resort town of Nha Trang, raising environmental concerns in one of Vietnam's most beautiful bays.

POSCO said earlier this year it aimed to start construction of the plant, which will have annual output of 4 million tonnes, next April.

The South Korean group is one of many global steel firms, including India's Tata Steel (TISC.BO) and Taiwan's Formosa (6505.TW), looking to Vietnam for expansion and as a gateway to the Southeast Asian market.

POSCO has already started building a separate $1.13 billion facility in the southern coastal province of Ba Ria-Vung Tau that will produce 1.2 million tonnes of hot-rolled steel products annually from next year.