SEOUL - SOUTH Korea's government warned that its economy was not out of the woods and said it would continue policies to fire up growth even though its currency hoard grew in April in the latest sign that Asia's fourth-largest economy is improving.

Both President Lee Myung-bak and the finance ministry on Thurday cautioned over a nascent recovery, pointing to global economic uncertainty and persistently poor domestic demand.

'The government's massive fiscal spending over the past year helped the economy recover to the current level. Now it's time for the private sector to take the initiative,' President Lee Myung-bak said in a statement released after hosting an emergency economic policy meeting on on Thursday.

The finance ministry predicted improved industrial output and a more than US$3 billion (S$4.41 billion) current account surplus for April as well as another trade surplus for May.

The optimistic forecasts followed robust output and exports data and pre-crisis levels of consumer and business sentiment, which sparked hopes for an earlier-than-expected turnaround for Asia's fourth-largest economy.

Hopes of a recovery have pushed South Korean shares and the currency sharply higher. Seoul shares have gained about 40 per cent and the Korean won rallied nearly 25 per cent since March.

'The government believes what it could do has been done and wants to pass the ball to the private sector. I think the economy is ready to stand on its own feet now,' said Goh You-sun, an economist at Daewoo Securities.

'We will see a full recovery late this year from the sharp contraction in the fourth quarter of last year and there will be no more rate cuts down the road.' The government pledged stimulus measures worth 70 trillion won (S$80.2 billion), while the Bank of Korea slashed interest rates by 3.25 percentage points from October to February.

The central bank next reviews rates on May 12 after pausing its unique rate-cutting campaign for two consecutive months. -- THOMSON REUTERS