The Bank of Korea promised to give loans worth US$10 billion to small and medium firms to pay for their imports, while the finance ministry said it would add a further six billion dollars in loans.

The injection, which will begin on Monday, aims to ease a dollar shortage for firms importing raw materials and exporting goods, the ministry said.

The central bank said it would also increase foreign currency liquidity via long-term currency swaps.

Separately, the Financial Services Commission said it would set up a 10 trillion won (S$10.9 billion) bond market stabilisation fund.

The state-run Korea Development Bank will provide 20 per cent of the fund, while the remaining 80 per cent will be financed by pension funds, banks, insurance firms and other private investors, the watchdog said.

South Korea is trying hard to stimulate sluggish domestic demand because of worries over a likely slowdown in its crucial export sector as the world enters a period of economic gloom.

The country's economy grew 0.6 per cent quarter-on-quarter in July to Sept, the slowest quarter-on-quarter growth in four years as households and smaller firms struggle with mounting debt and increasingly cut spending.

A currency swap agreement reached with the United States Federal Reserve last month has eased downward pressure on the won and given the central bank more scope for interest rate cuts.

The swap halted a slide in the won, which has lost around a third of its value against the dollar this year and is Asia's worst-performing major currency. -- AFP