SEOUL – South Korean President Lee Myung-bak faces a challenge this week on how to soothe political rancor that spilled out on Monday after the suicide of his predecessor Roh Moo-hyun and could threaten his economic reforms.

Adding to Lee's concerns, North Korea said it set off a powerful nuclear device, which analysts see as partly aimed at pressing him to drop his hard-line policies toward Pyongyang, in contrast to his predecessor Roh who tried to draw the North out of its shell with large-scale aid.

But the test may end up benefiting Lee by diverting attention from domestic politics and the public might rally around its leader in a time of trouble, analysts said.

Investors sent Seoul shares lower in early trading partly on fears the death of Roh, 62, who jumped to his death on Saturday after being ensnared in a widening corruption probe, could cause social unrest and spur political friction.

Shares fell again on news of the test, which also pushed down the won against the U.S. dollar, though both recovered and the key stock index closed down 0.2 percent.

President Lee, a former businessman, won a landslide in a December 2007 election on pledges to undo Roh's left-of-center policies and Roh's supporters are pointing fingers at the new conservative government for the corruption investigation.

I think there are issues over which (Lee) is to be held responsible politically, Song Young-gil, a senior MP in the main opposition Democratic Party told radio broadcaster MBC.

The left-leaning newspaper Hankyoreh said in an editorial the Lee government should stop using prosecutors as perpetrators.

Lee has faced South Korea's worst economic downturn in a decade, mass street protests against his government, threats from North Korea to reduce the South to ashes and a parliament that has taken up little of his reform agenda.

REFORM LEGISLATION

At present, public anger is focused on prosecutors but any blunder by Lee could sway public opinion to make him seem an object of scorn bent on political retribution, said Hahm Sung Deuk, a political science professor at Korea University.

It then would jeopardize the ruling party's agenda in the extraordinary parliament session in June, Hahm said.

The session may be delayed due to Roh's death, which would push back debate on contentious bills supported by Lee's ruling Grand National Party.

Political fighting in parliament has delayed most of Lee's reforms designed to reshape Asia's fourth-largest economy and steer it through the global financial crisis through tax cuts, labor law reforms and privatization.

Emotions have been running high over Roh's shocking death with more than 100,000 paying their respects in his southeastern hometown, Bonhga Village. Police said a provisional investigation found the death to be a suicide.

A public funeral for Roh has been planned for Friday and Lee's aides are debating whether he should first pay respects at a memorial set up in Bongha, after Roh's supporters destroyed a flower offering sent by the president.

North Korea's nuclear test -- and a report a few hours earlier that leader Kim Jong-il had sent condolences to Roh's family -- has reminded South Koreans of how policy toward the North has changed from an accommodative stance under Roh to one demanding greater accountability under Lee.

Roh and Kim met in October 2007 for only the second summit of two countries technically still at war, and who have positioned more than one million troops near their heavily armed border.

South Korea