South Korean consumer confidence dropped to the lowest level in three months as Europe’s debt woes dimmed the outlook for Asia’s fourth-largest economy.

The sentiment index was at 101 in June after reaching 105 in May, the Bank of Korea said in an e-mailed statement today. A reading above 100 indicates optimists outnumber pessimists.

The Bank of Korea indicated on June 21 it may cut its 2012 growth forecast in July for the second time this year as Europe’s crisis worsens. German Chancellor Angela Merkel yesterday rejected joint euro-area bonds as European Union leaders struggle to agree on a plan ahead of a two-day summit this week.

“The European debt woes are finally hurting consumer sentiment here and this is a bad sign for our economy as exports are already declining,” said Lee Sang Jae, a senior economist at Hyundai Securities Co. in Seoul. “The authorities may have to come up with stimulus such as interest rate cuts should the EU continue to heavily weigh on consumer and business sentiment around the world.”

The MSCI Asia Pacific Index fell 0.2 percent as of 9:21 a.m. in Tokyo.

The expected inflation rate over the next year was 3.7 percent in June, unchanged from last month, today’s report showed. Consumer inflation held at a 21-month low of 2.5 percent in May.

The consumer confidence index is based on survey responses from 2,072 households in 56 cities. It was conducted by mail and telephone between June 12 and June 19.

To contact the reporter on this story: Eunkyung Seo in Seoul at eseo3@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net