By Jack Kim

SEOUL, July 1 (Reuters) - South Korea's prime minister said on Tuesday violent street rallies against a U.S. beef import deal are harming the country's international credibility and driving investors away.

Prime Minister Han Seung-soo issued the warning at a cabinet meeting as he renewed a pledge to crack down on protests that have grown increasingly violent and led to the arrests of more than 130 people over the weekend.

"The daily protests are making foreign investors avoid direct investment in Korea and also discouraging investment by domestic businesses," Han said. "The credibility of South Korea's economy is worsening rapidly."

South Korea's benchmark stock index <.KS11> is already under pressure from weakening economic growth and fears of mounting stagflation. The index fell one percent as foreign investors sold a net 54 billion won ($51.4 million) worth of stocks early on Tuesday, the 17th straight day of net selling.

Han's comments echoed alarm that nearly two months of protests against the deal to resume imports of U.S. beef might speed up the flight of capital from South Korea as part of a larger movement of funds from emerging markets to safer havens such as U.S. Treasury bonds.

Analysts say the prospect of prolonged protests could mean further delays for President Lee Myung-bak's plans to implement pro-business reforms and could mean overseas investors keep their money out of Asia's fourth-largest economy for some time.

South Korea and U.S. trade officials said last week they had reworked a beef import deal first struck in April which sparked massive street protests against the deal and broadened into protests against Lee's leadership.

The demonstrations caused support for Lee and his four-month-old government to plunge.

South Korea was the third-largest export market for U.S. beef until shipments were halted in 2003 after an outbreak of mad cow disease in the United States.

Last week, the country started processing its first batch of U.S. beef to enter under new quarantine rules designed to allay Korean fears of mad cow disease by limiting imports to beef from younger cattle and banning risky parts of the cattle.

That led to a resurgence of protests that at the weekend involved a clash between an angry mob wielding steel pipes and riot police, resulting in scores of injuries on both sides.

Han has ordered the police and the prosecution to use "all available instruments" to crack down on violent and illegal protests and restore law and order.

"What may have started as peaceful candle-lit rallies have now changed so much that there is hardly any sign of good intentions left, and the level of violence has exceeded the reasonable limit," Prime Minister Han said. (Additional reporting by Cheon Jong-woo and Park Jung-youn; Editing by Keiron Henderson and Valerie Lee)

AlertNet news is provided by