Goldman Sachs said that South Korea's economic growth is expected to slow to 3.5% in 2012 from 3.7% in 2011 due to the fallout of the euro zone debt crisis.

Mr Kwon Goo hoon economist at Goldman Sachs said that "Growth is largely expected to slow in the beginning of 2012, due to the impact of the European debt problem, but is likely to pick up in the second half."

The global investment banking giant also predicted the South Korean economy, Asia's fourth largest, to expand 4.1% YoY in 2013.

Mr Kwon said that the Bank of Korea may move to cut the key interest rate by 0.5 percentage points in the first half of next year as part of efforts to boost domestic demand.

South Korea's seven day repo rate currently stands at 3.25%, after the BOK froze the benchmark rate for the fifth straight month in November 2011, citing downside growth risks such as Europe's sovereign debt crisis.

The Goldman Sachs economist, meanwhile, projected the main Seoul bourse to gain upward momentum starting in the second quarter, forecasting a low of 1,800 and a high of 2,400.

Mr Kwon said that as the situation in Europe is unlikely to be resolved in the short term, share prices may fall around 10% before trending higher.

Goldman Sachs recommended investors to buy shares of domestic focused issues such as techs, non life insurers and builders.

(Sourced from www.yonhapnews.co.kr)