S.Korea eyes steps to revive demand for autos

By Yoo Choonsik

SEOUL (Reuters) - South Korea pledged on Friday to support the country's carmakers, sending shares in the industry sharply higher, as the government tries to dodge a recession by reviving demand in Asia's fourth-largest economy.

The move, which could include a cut in the consumption tax on vehicles, comes as cooling foreign demand has forced Hyundai Motor, along with the whole of the economy, to rely on domestic demand to weather the global recession.

Policymakers at the country's central bank, the Bank of Korea, meet next week and economists are predicting a further cut in interest rates then after the bank lowered its base rate by a combined 1.25 percentage points since October.

Governments around the world are looking to shield their car industries as belt-tightening consumers shun showrooms, with U.S. lawmakers seeking up to $34 billion (23 billion pound) in aid, while Australia plans a trust to help finance local car dealers.

"The government will study pro-active measures to revive domestic demand and co-operate with the related ministries over a consumption tax cut and other measures," Minister of Knowledge Economy Lee Youn-ho told reporters.

Shares in Hyundai Motor jumped more than 5 percent and its affiliate Kia Motors by more than 6 percent, driving the automobile sector index up 3.6 percent.

Hyundai and other South Korean auto makers suffered a shocking 27 percent drop in their sales at home in November over a year earlier, or a 30 percent fall over a month earlier, figures released by companies had showed.

Auto makers employ 270,000 workers, or just more than 1 percent of the country's total workforce, but account for one-seventh of the total exports and help related industries such as parts makers keep thousands more in jobs.