Hyundai Motor Group chief Chung Mong-koo was on Thursday handed a three-year suspended sentence by a South Korean appeals court.

This allows him to continue running the word's sixth largest auto maker.

The decision to suspend the sentence for five years eliminates concerns over a management vacuum at the company, which is facing a slowdown in overseas sales and increasing competition.

 Hyundai Motor shares extended their gains after news of the ruling, closing 0.6 percent up after rising as much as 2.2 percent, against a 0.9 percent gain in the main KOSPI.

Although it suspended the three-year jail term given in February by the Seoul Central District Court, the high court upheld the lower court's conviction of the chairman for breach of trust, embezzlement of company money and setting up slush funds.

Investors had been concerned that uncertainties over Chung's legal battle could hamper Hyundai's expansion plans at home and abroad, even though brisk domestic sales and a smooth conclusion to this year's wage talks are brightening the outlook somewhat.

Hyundai Motor Group alone accounts for about 7 percent of South Korea's total exports, which help the economy remain on a growth track, and Chung is heavily involved in most decisions at the group.

"Hyundai Motor is the top enterprise because of its ripple effect on the whole economy. The accused, Chung Mong-koo, is a symbol of Hyundai Motor and our country's automobile industry," Lee Jae-hong, the presiding judge at the Seoul High Court, said while handing down the sentence.

"I did ask many people, including restaurant waiters, taxi drivers and reporters. The ordinary people leaned toward a suspended sentence," he said. "That means the accused should work hard."

Chung, dressed in a severe dark gray suit, showed no emotion as the ruling was announced and quickly left the courthouse, flanked by his son Chung Eui-sun, himself president of Hyundai affiliate Kia Motors Corp.

Hyundai's charismatic chairman was arrested in April 2006 on allegations that Hyundai and its affiliates set up slush funds to pay for political favours.

The chairman admitted last year to having a role in setting up slush funds through affiliates of Hyundai.

The lower court sentenced Chung in February but granted him $1 million bail to continue running Hyundai after he spent two months in jail. The case has put the spotlight on management shortcomings at South Korea's powerful "chaebol" - the family-run conglomerates that helped rebuild the economy after the 1950-53 Korean War but were partly blamed for the financial crisis of the late 1990s.

Despite reforms brought in after the 1997-98 Asian financial crisis, some conglomerates are still run like family businesses, shifting money among group companies and using complex share ownership networks to control their businesses. - Reuters