* KOSPI hits fresh highs as N.Korea concerns abate

* Gains led by steelmakers and crude oil refiners

* Foreign investors turn net sellers

SEOUL, Dec 21 (Reuters) - Seoul shares bounced and hit a 38-month high on Tuesday as investor anxiety on growing geopolitical tensions in the peninsula eased, and the market was lifted further by gains in steelmakers and crude oil refiners.

The Korea Composite Stock Price Index .KS11 (KOSPI) was up 0.77 percent at 2,035.74 points as of 0201 GMT, the highest level seen since early November 2007.

“Overriding concerns about South Korea’s geopolitical risks have eased due to fairly calm reaction from North Korea following South Korea’s military drills,” said Han Beom-ho, a market analyst at Shinhan Investment Corp.

North Korea stepped back from confrontation over “reckless” military drills by the South on Monday and reportedly issued a new offer on nuclear inspection, drawing a cautious response from Seoul and Washington.[ID:nL3E6NK01M]

“Upside momentum will probably continue through end of this year,” Han added.

Foreign investors were sellers of a net 35.2 billion won ($30.50 million) worth of stocks, poised to snap a six consecutive session buying streak.

Shares in Hyundai Engineering & Construction 000720.KS jumped more than 5 percent after news its shareholders were set to name Hyundai Motor Group 005380.KS a preferred bidder for South Korea's largest builder, having ended talks on a 5.5 trillion won ($4.8 billion) takeover by Hyundai Group.[ID:nTOE6BJ02U]

But shares in Hyundai Motor 005380.KS retreated 1.7 percent and Kia Motors 000270.KS shares were flat.

Shares in steelmakera rallied on expectations of higher steel prices due to falling inventories, analysts said.

“Steelmakers were largely left out during the market’s recent rally, and we are hearing inventories are falling, which will certainly help steel prices,” said Eom Jin-seok, an analyst at Kyobo Securities.

“Economic recovery hopes for the U.S. and Europe are also buoying sentiment,” Eom added.

Shares in POSCO 005490.KS, the world's No.3 steelmaker, were up 4.4 percent and Hyundai Steel 004020.KS jumped 7.2 percent, with trading volume for the shares 2.3 times its 30-day average daily trading volume.

Shares in crude oil refiners traded firmly, with SK Energy 096770.KS, the country's top crude oil refiner, rallying 6.2 percent. GS Holdings 078930.KS, the parent firm of the country's second-biggest refiner GS Caltex, rose 5 percent.

“Refining margins are steadily improving and demand is also seen robust,” said Kim Jae-joong, an analyst at Woori Investment & Securities. (Reporting by Jungyoun Park; Editing by Jacqueline Wong)