SEOUL - A CURRENCY swap deal between South Korea and the United States has dissipated 'groundless rumours' about the country heading for a second financial crisis, a senior official said on Friday.

The US Federal Reserve Wednesday announced temporary swap lines of credit worth up to US$30 billion (S$44.4 billion) with each of the central banks in Brazil, Mexico, South Korea and Singapore to help ease a credit squeeze.

'The deal wiped out groundless rumours that South Korea is headed for a second financial crisis,' Deputy Finance Minister Shin Je Yoon said in a radio interview.

'Strong economic fundamentals guarantee there will be absolutely no financial crisis', he said.

The deal sent South Korea's embattled currency and stock market rising dramatically on Thursday.

The won rebounded strongly to close at 1,250 won per US dollar, compared with 1,427 won the previous day.

It fell back soon after Friday's opening, trading at 1,283.3.

Mr Rhee Gwang Ju, assistant governor of the central Bank of Korea, also said the swap deal would help ease uncertainties and restore stability to the local foreign exchange market.

'The swap deal will calm market jitters which sparked the recent upsurge in the dollar-won exchange rate', Mr Rhee said in another radio interview.

'Barring unexpected factors, the dollar-won exchange rate will return to normal'.

The 1997/98 economic crisis forced South Korea to seek a US$58 billion bailout from the International Monetary Fund. -- AFP