"Several macroeconomic indicators are raising the possibility that the Korean economy may be bottoming out and shifting to an upturn," the state think tank said in a report on December economic trends.

Industrial output maintained a slow upward curve in November last year, while the scale of inventory adjustment is increasing, the KDI said. International prices of computer chips have been surging since December, it added.

Semiconductors are one of the nation's key export items. A plunge in chip prices has sent the Korean economy into a slump for the past year.

The price of 128 mega DRAM chips has recently jumped to $2.92 per unit from $1.6 in November last year, hinting at the recovery of the global semiconductor industry, the institute said.

In addition, positive signs are emerging that the U.S. economy could recover in the near future, KDI said. Korea's economic activity relies largely on the performance of the world's largest economy as it is the single biggest importer of Korean products.

"A look at output and inventory shows that Korean industries showed characteristics of a business trough during the October-November period of last year," it said. "Industrial output has since risen slightly, while the pace of inventory growth has slowed sharply."

Output of the information technology sector switched to a 5.3-percent gain from negative territory in November, while production of semiconductors also climbed a solid 4.2 percent.

Producer sales surged 7.1 percent year-on-year in November, while the growth rate of inventory slowed to 2.3 percent, continuing its downward curve since the second quarter of last year.

The think tank predicted that after switching to a 4.4 percent increase, the nation's corporate capital spending would not shrink any more. Facility investments were on the decline till October last year.

Korea's terms of trade will improve when a recent rise in chip prices and falling crude oil prices are reflected in them, the KDI said.

Affected by a global economic slump, the Korean economy remained in the doldrums throughout 2001. Korea's gross domestic product (GDP) is estimated to have grown 2.8 percent in 2001, sharply down from an 8.8-percent surge in 2000.

The KDI said that the global economy is showing positive signs recently though it is still mired in a slump. "The decrease rate of U.S. industrial output has slowed, while its consumer confidence index has risen sharply."

The think tank said that the current weakness of the yen is a result of international rating agencies' downgrading of Japan's credit rating and the Japanese government's position to allow its currency to weaken against the dollar, amid mounting skepticism about its economic reform