SEOUL, SOUTH KOREA - South Korea's economy grew at its fastest pace for more than seven years in the third quarter, official figures showed Monday, as Asia's economies lead the world out of its slump.

Gross domestic product rose 2.9 percent quarter-on-quarter in July-September and 0.6 percent compared with a year earlier, the central Bank of Korea said in an advance estimate.

The quarter-on-quarter growth was the country's fastest since 3.8 percent in January-March 2002.

Asia's fourth largest economy had recorded a 2.6 percent gain quarter-on-quarter in April-June but the figure represented a 2.2 percent contraction year-on-year.

On a year-on-year basis, Monday's figures showed that GDP turned positive for the first time in four quarters.

'Industrial output, led by chips and automobiles, posted robust growth in the third quarter,' the bank said in a statement. 'Private consumption and facility investment also grew, contributing to growth.'

Amid a global recession sparked by the financial crisis, the economy had tumbled 5.1 percent quarter-on-quarter in the last three months of 2008 before rising 0.1 percent in January-March.

Its recovery has been fuelled by aggressive government fiscal spending and rate cuts. Exports have profited from the local currency's sharp drop against the dollar until recently, and overseas stimulus programmes.

Exports rose 5.1 percent quarter-on-quarter in the three months ending September 30, after jumping 14.7 percent in the second quarter.

Private spending increased 1.4 percent compared with a 3.6 percent gain in the preceding quarter.

Capital investment climbed 8.9 percent after rising 10.1 percent in the second quarter, while construction investment declined 2.1 percent compared with a 1.7 percent expansion three months earlier.

South Korea's better than expected numbers are the latest indication that Asia is powering the global recovery. China last week announced its economy grew 8.9 percent in the third quarter from a year earlier.

The continent's largest economy Japan grew at an annualised rate of 2.3 percent in the second quarter.

South Korea has recorded a string of positive data recently. Sales at major department stores increased in September at the fastest pace in eight months.

Manufacturers' confidence remained at a two-year high for a second straight month in October, while major exporters Hyundai, Kia and Hynix Semiconductor have reported strong third-quarter performances.

The central bank said inventory build-up, which rose 2.9 percent quarter-on-quarter, also contributed to the high third-quarter figure.

Economists said growth would likely slow in the fourth quarter, with the waning impact of the government's stimulus measures.

'Continued strength in exports will be the main driver for economic growth, while domestic demand will be weakened due to the withdrawal of fiscal stimulus,' Oh Suk-Tae, an economist at Standard Chartered, told Dow Jones Newswires.

'Fiscal factors may lead to a slowdown in GDP growth in the fourth quarter.'

Kim Myung-Kee, director-general of the bank's economic statistics division, said full-year GDP was likely to be flat or fall by no more than one percent. Finance Minister Yoon Jeung-Hyun was more upbeat.

'The third-quarter growth is a surprise given that the economy still faces many downside risks such as a fiscal restraint, exchange rates and (higher) oil prices,' he told a forum.

'Things are improving fast enough to predict positive annual growth for this year just a few months after the International Monetary Fund predicted a contraction of 4 percent for the South Korean economy.'