US RATE HIKE TO BOOST S KOREA'S EXPORTS, BUT HAS LONG-TERM RISKS.

SEOUL, July 1 Asia Pulse - The increase in the U.S. interest rate, which signals a recovery in the world's largest economy, is good news for South Korea, where growth is largely led by exports, local analysts said Thursday.

However, the benefit would be short-lived if the rate is raised higher, as speculated, they warned.

The U.S. Federal Reserve raised the key short-term rate by a quarter of a percentage point to 1.25 per cent Wednesday, its first rate hike in four years.

The widely anticipated move is aimed at lifting the federal funds rate that banks charge each other for overnight loans from a 46-year low of 1 per cent to a more normal level as the U.S. economy shows strong signs of recovery.

"The U.S. interest rate raise shows the country's strong confidence in its economic recovery," Bae Sang-kun, a fellow at the Korea Economic Research Institute, said. "For South Korea, whose growth is very much dependent on exports to developed markets, this is not bad news at all."

Spurred by robust exports, South Korea's gross domestic product (GDP) grew 5.3 per cent year-on-year in the January-March period.

In the first five months of the year, South Korea exported US$101.6 billion worth of goods, of which the United States accounted for 16.1 per cent, according to government statistics. The United States is the country's second-largest export market after China.