SEOUL - SOUTH Korean authorities repeatedly sold dollars on Friday to dramatically lift the won from an early plunge, prompting the biggest daily swing in the currency since the Asian financial crisis a decade ago.

The won slumped as much as 5 per cent in early trading and the main stock index dropped 9 per cent, prompting official and private-sector efforts to restore confidence in the country's markets, reeling from the financial tsunami unleashed by the global credit crisis.

The heads of local brokerages agreed to join forces to create a fund to shore up the stock market and local media reported that regulators will demand banks report currency transactions in a bid to detect speculation in the won.

'The market's in a panic, and it is moving completely out of the norm,' Mr So Jang Ho, an analyst at Samsung Sec, said earlier in the day.

'Extreme volatilities in forex markets are worsening sentiment. It's critical that some stabilisation is seen in won-dollar rates.'

In the latest official move to boost confidence in Asia's fourth-biggest economy, Finance Minister Kang Man Soo is to plead with US bankers for extended credit lines for the country's banks, which are struggling to secure dollars amid frozen credit markets.

The South Korean authorities, which this week joined a global round of rate cuts, were forced to step in to the currency market for a second day to prop up the beleaguered won after it tumbled 5 per cent in early dealings.

However, it ended local trading up 5.6 per cent compared with the day-earlier closing level for a price swing of close to 19 per cent.

It marked the biggest intraday move in the currency since December 1997, when Korea was in the midst of the Asian financial crisis that took the country to the brink of default.

Currency dealers said authorities had sold dollars a number of times to try to support the won.

But unlike a few months ago, when the authorities tried to draw a line in the sand at 1,000 to the dollar, this time they do not appear to have any target, traders said.

South Korea has the world's sixth-biggest reserves at some US$240 billion (S$354 billion).

Local media also said that South Korea's regulator, the Financial Supervisory Service, will also require local and foreign banks to report their currency transactions in a bid to try to detect any speculators.

The main Seoul stock index fell as much as 9 per cent to hit its lowest level since November 2005, but cut those losses to end Friday's session down 4.1 per cent. Still, that was the lowest close since 2006.

The market was helped by news that local brokerages would form a fund to prop up the market. They also said they would refrain from selling foreign financial products to help bring some stability to the wildly moving won.

Seeking credit
A key worry for investors is that Korean banks have high levels of loans compared with deposits.

The ratio is much higher than in most the of the rest of Asia, making them more reliant on short-term credit markets that are at the heart of the global credit crisis.

President Lee Myung Bak has called for a summit later this month with neighbouring economic giants Japan and China on ways to grapple with the downward spiral in financial markets.

The finance minister is flying to New York where, on the sidelines of annual IMF/World Bank meetings this weekend, he will meet leading US bank executives to seek expanded credit lines for his country's banks that are struggling to secure dollars in the global credit freeze.

'(The minister plans to) request their support in domestic banks' efforts to secure more foreign-currency liquidity, such as expanding their credit lines to domestic banks, as well as discuss recent circumstances,' the ministry said.

Mr Kang, who faces growing criticism at home for his handling of the impact of the financial turmoil, will meet with Citigroup, Morgan Stanley and Goldman Sachs to seek more liquidity for Korea's banks which are struggling to secure dollar funds.

On Monday, he urged the country's banks to sell foreign assets to help raise dollars that other banks are unwilling to lend to them.

He also plans to discuss the global financial crisis, which has toppled banks as far afield as the United States and Iceland, with his counterpart from Japan.

The Bank of Korea rushed to join this week's round of interest rate cuts by authorities around the world, including those in the United States, China and Europe, and signalled it was ready to cut again to help economic growth, which looks set to fall to a six-year low next year. -- THOMSON REUTERS