Dec. 28 (Bloomberg) -- South Korea's current account surplus narrowed in November as high oil prices pushed up the import bill and threatened to slow growth.

The surplus stood at $1.75 billion last month, compared with a revised $2.46 billion in October, the Bank of Korea said in Seoul today. The current account is the broadest measure of trade, tracking goods, services and investment income.

High oil prices ``are definitely threatening to become a drag on South Korea's economy,'' Finance Minister Kwon Okyu said this month. Rising fuel costs could also complicate monetary policy by fanning inflation already at the highest in more than three years.

``Rising oil prices are a big headache for next year,'' said Lee Sang Jae, an economist at Hyundai Securities Co. in Seoul. ``The central bank will have to closely watch inflation in coming months.''

Confidence among South Korean manufacturers slid for a third month in December on concern that higher energy prices will increase production and transport costs and curb sales. Crude oil rose above $99 a barrel for the first time in November.

South Korea purchases 97 percent of its energy needs from overseas, and is the world's fifth-largest importer of oil.

In November, imports on a customs-cleared basis gained 26 percent from a year earlier and exports rose 17 percent.

Oil Prices

During the first 11 months of 2007, the current account surplus widened to $7.02 billion from $5.32 billion in the same period last year.

``The current account is expected to see a deficit of $3 billion next year after a surplus of $6.5 billion this year largely because of high oil prices,'' Yang Jae Ryong, an official at the bank's economic statistics department, said today.

The deficit on the capital account, a measure of the flow of investment, narrowed to $1.5 billion from $1.9 billion in October as foreign direct investment increased. The figure held in deficit as Koreans invested more overseas and foreign investors reduced holdings of Korean stocks, the central bank said.

The central bank said the amount of money borrowed overseas by local branches of foreign banks and local banks fell to $8.3 billion in November from $8.8 billion in October.

The Bank of Korea has taken steps to limit overseas borrowing by banks to lower the nation's external debt and stem the flow of funds into the economy, which threatens to fan inflation.

Corporate Lending

South Korea's lending to companies increased the most since December 2000 and household debt also climbed in November.

Bank of Korea Governor Lee Seong Tae says a borrowing surge can reduce the financial health of banks and consumers and may ignite asset-price bubbles that threaten economic growth should they burst.

The deficit on the services account, which measures the international flow of travel, transport costs and royalties, widened to $1.46 billion in November from $1.42 billion in October. The gap widened as income earned from renting ships declined, and Korean companies paid more for overseas patents.

The surplus on the income account, which tracks the flow of interest payments, investment income and wages, narrowed $423 million in November from $503 million in October as interest income earned overseas declined.

After seasonal adjustment, the country posted a current- account surplus of $75.6 million in November.

To contact the reporter on this story: William Sim in Seoul at wsim2@bloomberg.net

Last Updated: December 27, 2007 20:40 EST