Buttressed by a faster-than-expected recovery in consumer spending and firm corporate earnings, the Korean economy is increasingly manifesting a strong performance this year.

After expanding by 5.2 percent in the final quarter of 2005 - the fastest pace in six quarters - Asia's fourth largest economy is poised to register a 5 percent growth rate this year.

This recent progress comes faster than anyone suspected - in just two years since the economy suffered an arrest from massive household debt, shortly after President Roh Moo-hyun came to office. He now has two more years in his tenure.

Adding further evidence to what may advance into a full-blown recovery, the country is releasing a stream of solid macroeconomic data.

Service output grew 3.5 percent from a year earlier in 2005 to accelerate at its fastest pace in three years and consumption rose by almost 5 percent last year. Industrial production grew at an annualized 11.3 percent in December, compared with a 12.2-percent gain the previous month.

Consumer confidence rose for a fifth straight month in January.

"Exports have lost some steam in January, but still not so much as to warrant any real fear," said Oh Suk-tae, an economist at Citibank Korea.

Lehman Brothers, offering a 6 percent growth forecast on Korea, said it remains bullish on the economy as it sees the country firing on all cylinders including exports, consumption and corporate investment.

Citing the firm figures, the Bank of Korea, the nation's central bank, bumped up its overnight call rate on Feb. 9 to 4 percent, the third hike in five months. It is the first time the rate hit 4 percent since July 2003.

The bank said inflationary pressure could rise because the economy is gathering steam at a faster pace.

When people spend more amid an expanding economy, consumer prices usually rise in tandem to give rise to inflation.

"We've reviewed the risk factors carefully and reached the conclusion that our previous 5 percent growth forecast is still attainable," said Gov. Park Seung.

He hinted at more tightening by suggesting that the current rate is still below what he called a "neutral" level.

In 2004, the bank maintained a loose monetary policy to help unleash liquidity in the market in hopes of igniting spending.

On the equity front, the stock market, although not as robust as investors would have liked, remains bullish despite waning a bit after seeing a significant runup in 2005.

After driving through 1,400 points on Jan. 5, the benchmark Kospi index gave way to some volatility. Economists, however, regard the retreat as a technical dip, especially since it comes against a backdrop of strong corporate earnings.

Government figures show that local banks saw their net income rise more than 50 percent to a record high last year. Their combined earnings amounted to an estimated 13.4 trillion won ($13.9 billion) in 2005, up 52.4 percent from a year earlier.

Michael Kurtz, an economist at Bear Stearns Asia, cited "strong earnings growth and a willingness in businesses to spend more" as the driving factors of the economic turnaround.

"We have seen a broadening in the economic recovery in the beginning of this year, and what's more, the growth is being driven more by business spending than consumers," Kurtz said. "That really gives us conviction."

In December last year corporate investment in plants and facilities rose over 13 percent, an increase that is expected to fuel job creation and income. Further appealing to investors, especially those of foreign nationalities, is a reshaping of the country's capital and financial markets.

The Finance Ministry, the nation's top economic policymaking organ, has undertaken the task of breaking down the barriers between different financial sectors and opening them up to the global community.

By 2011, the country seeks to completely liberalize its foreign exchange market to keep up with OECD compatriots.

A bill that integrates the various capital market laws, such as those for securities trade, futures trade and asset management, will be passed at the National Assembly before the year is out.

"This is an initiative the government is taking to ensure a competitive regulatory framework that best caters to international financial companies," said Kwon Tae-shin, vice finance minister.

A negative factor for the economy is the local currency that has appreciated 4 percent so far this year. Last year, it gained slightly over 2 percent.

A weakening U.S. dollar appears to be a global trend, but much is at stake for Korea as the falling foreign exchange rate is hurting exports, the main engine of its economic growth.

Illustrating the impact of the low rates, for each 100 won drop, Samsung Electronics, the country's largest electronics maker, knocks off 2 trillion won from its profit.

Second-largest industrial group Hyundai Motor Co. loses 3 trillion won of profit when the exchange rate drops 10 percent. With these concerns in mind, the company switched gears to a so-called "emergency mode" in January.

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