UPDATE 1-S.Korea economy grows fastest in 5-陆 years

SEOUL, July 24 - South Korea's economy grew at its fastest clip in 5-½ years in the second quarter, powered by the unprecedented pump-priming measures, bolstering the view that the economy had passed the worst and interest rates bottomed out.

Gross domestic product rose a seasonally adjusted 2.3 percent between April and June, slightly below market expectations but the best performance since the fourth quarter of 2003 when it rose 2.6 percent, preliminary central bank estimates showed on Friday.

Private consumption rose 3.3 percent during the second quarter and capital investment increased 8.4 percent, both marking a significant turnaround.

"The massive government support began to revive domestic demand and investment, a promising sign for a self-driven recovery," said Park Jong-youn, a fixed-income analyst at Woori Investment&Securities.

"But the authorities would not want to exit from the emergency actions until they are confident about the recovery sustainability."

The economy barely averted a recession with a 0.1 percent gain in the first quarter after suffering a 5.1 percent contraction in the last quarter of 2008, the worst performance since the Asian financial crisis in the late 1990s.

The central bank data also showed that the economy shrank 2.5 percent in the second quarter over a year earlier, reducing the slide from a revised 4.2 percent drop in the first quarter.

The central bank cautioned against overblown optimism earlier this month, warning that the economy will lose some of steam in the second half amid decreased government spending and flagging global demand.

The government offered about $50 billion in fiscal spending and tax cuts to support the economy and already spent 60 percent of its budget for this year.

The Bank of Korea slashed interest rates by 3.25 percentage points to a record-low 2.0 percent since early October before staying pat for the last five meetings. Its next rate meeting is August 11.