SEOUL, June 2 (Reuters) – South Korea’s opposition Democratic Party put on an unexpectedly strong showing in local elections on Wednesday but the close fight is unlikely to put the brakes on President Lee Myung-bak’s drive to adopt pro-business reforms.

The ruling Grand National Party (GNP) expressed surprise at how close some of the key races were being fought, but Lee averted a landslide defeat in mid-term elections in which previous incumbent parties have struggled to pick up seats.

Lee’s uncompromising stand against North Korea after blaming it for sinking one of its navy ships has seen him and the GNP bounce back in opinion polls from a voter backlash after a decision to scrap a plan to shift a large part of the government from Seoul and rows over U.S. beef imports and a river project.

“It appears a big block of hidden votes representing concerns about the tensions with the North and doubts about the way the government handled the ship sinking turned up at the polling stations,” said political commentator Yu Chang-seon.

GNP candidates were leading in five of 16 races for large city mayorships and provincial governors. The opposition Democrats were ahead in five, with six races too close to call, exit polls conducted by three major television networks showed.

Voting for nearly 4,000 mayors, governors and local government representatives has been overshadowed by the March sinking of the South Korean naval corvette Cheonan, which Seoul has blamed on reclusive North Korea, fuelling shrill rhetoric on both sides, including threats of war.

“This will unlikely result in a landslide win for the GNP,” said Choi Han-soo, a professor of Konkuk University in Seoul.

“The Cheonan ship incident could have given Lee a sweeping win, but sentiment to check the current government will deliver him a win by a narrow margin.”

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Lee told Chinese and Japanese leaders at the weekend Seoul was not afraid of war, but did not want it, projecting the image of a government confident of its power and mindful of how mounting tension could unnerve international investors.

Foreign Minister Yu Myung-hwan said controlling cash flows into the North was the most effective “non-military measure” to ensure it is held accountable for the sinking of the Cheonan, which killed 46 sailors.

Pyongyang has accused Lee of fabricating the sinking for political gain ahead of the elections and threatened war if further sanctions are imposed.

“SLEDGEHAMMER BLOWS”

North Korea’s National Reconciliation Council appealed to voters in the South to “deal sledgehammer blows at the Lee Myung-bak pro-U.S. conservative group”.

“The ‘elections’ are an intermediary judgment to be meted out to the group,” North Korea’s KCNA news agency quoted the council as saying. “The past two years and several months of the Lee group’s office were days of disgrace, tribulation, pain and catastrophe.”

Last week, the North accused the South of driving a decade of developing ties into the ground and said it would scrap all pacts between the two sides, including military agreements guaranteeing safety of commercial exchange.

The liberal opposition in Seoul has blamed Lee for provoking tension after a decade of warming ties, with slogans harking back to the Sunshine Policy of the two previous liberal leaders who gave massive aid to the destitute northern neighbour.

Lee has established job creation as a top priority for the year and a smooth exit from massive fiscal spending that has pushed Asia’s fourth-largest economy out of the global downturn ahead of peers at a faster pace than expected.

Lee has seen his pro-business agenda held up in parliament since he came to office in early 2008 for a single five-year term after a summer of protests that year over his decision to allow a resumption of U.S. beef imports.

A proposal to move parts of the country’s central government to a newly constructed city about one hour south of Seoul angered the opposition and created deep rifts inside his own party. But Lee’s decision to scrap the plan also lost him voter support in the swing states in the central region.