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Nuclear threat from North plagues South Korean economy

SEOUL, South Korea — As tensions mount over North Korea's worrisome nuclear programs, so do the problems for South Korea's normally resilient economy.

The stock market has tumbled, the currency has slumped and foreign investment is beating a quick retreat as Seoul grapples with the potential of a nuclear-armed neighbor.

South Korean officials have made the rounds of global credit agencies like Moody's to stave off the slashing of the South's sovereign debt rating.

"A resolution of the North Korean nuclear issue in the shortest time is urgent and pivotal for the future improvement of the South Korean economy," said Lee Sangjae, senior economist at Hyundai Securities Research Center in Seoul.

South Korea's economy is far from the downward spiral it took during the 1997-98 Asian financial crisis, but economists warn that investors could be spooked if Pyongyang adds to the two atom bombs it is believed to already possess.

Tension with the North is not uncommon on the Korean peninsula, which has been divided since 1945 and where a three-year war was fought in the 1950s to stop a North Korean invasion.

Last June, a naval shootout killed six South Korean sailors, and a year earlier, communist and South Korean troops fired shots across the Demilitarized Zone separating the two sides.

Financial markets usually react to such events with no more than a ripple.

But since allegations in October that North Korea has a secret atomic weapons project, even small confrontations along the border now carry nuclear overtones.

Jitters have been stoked recently by two North Korean missile tests and the interception of a U.S. spy plane by communist fighter jets.

Seoul's main stock index has tumbled 14 percent since the beginning of the year, while the currency has dropped 5 percent to a five-month low against the dollar. Foreign investment in the stock market declined 12.5 percent over the period.

"If tension continues in the Korean Peninsula because of the current Korean nuclear issue, investment in (South) Korea will of course be reduced," warned Lee Won-joon, a partner at Accenture Consultants in Seoul.