Hankook Tire has picked Hungary as the site for its new €500 million ($US597.2 million) European plant.

Reuters noted that Hankook had also been considering the Czech Republic and Poland as possible sites for its new European production and distribution centre after its initial plan to set up a plant in Slovakia ran into difficulties.

Europe accounts for about 38% of Hankook exports and a European plant should boost its sales as South Korean car makers, including Kia, also start building new factories in the area, the news agency added, noting that an overseas plant would also cut foreign exchange risks after a strong won currency has dented profits among Korean manufacturers.

"We will first set up a unit in Hungary ahead of the construction of a production line there," the company reportedly said in a filing to the Korea Exchange, without elaborating.

Hankook spokesman Kim Sung-joong told Reuters the decision could still be reversed depending on how negotiations on detailed terms with Hungary proceeded.

The news agency said Kia started construction last year of a €1 billion factory in northern Slovakia while PSA Peugeot Citroen is building a €700 million assembly plant near the capital Bratislava, but the Slovak government turned down a proposed incentive package for Hankook Tire in a deal which would have been the country's third-largest greenfield foreign investment project with an estimated 1,600 direct jobs to be created.