October 6, 2011 / 2:00 AM / 8 years ago

UPDATE 1-S.Korea boosts vigilance amid capital flight fears

* President Lee reconvenes emergency meeting, first in over a year

* South Korea is worried about massive capital flight

* Seoul markets rally on euro zone relief, U.S. data (Updates after presidential emergency meeting)

By Yoo Choonsik

SEOUL, Oct 6 (Reuters) - South Korea’s president brought his government back into crisis mode on Thursday, as local markets have been rattled by fears of a possible repeat of 2008-style capital flight out of one of the region’s most vulnerable economies.

President Lee Myung-bak reconvened an emergency economic policy meeting with key officials including the finance minister and central bank chief for the first time since August last year to assess global economic and market trends.

The meeting, also attended by heads of top financial services companies, produced no fresh measures as it was more aimed at demonstrating the government’s readiness to address market issues in a swift manner, the president’s spokesman told reporters.

Finance Minister Bahk Jae-wan also reconvened his own emergency policy meeting on Wednesday for the first time in 10 months after Seoul stocks tumbled more than 20 percent and the won more than 10 percent over the last two months.

The stock market rose 3.6 percent and the won jumped half a percent against the dollar early on Thursday in their best performances in several weeks on easing fears about the euro zone’s debt crisis and robust U.S. economic data.

President Lee also asked lenders to strengthen support for export companies in securing trade financing.

South Korea’s export-oriented economy has been hit particularly hard because of concerns about Korean banks’ heavy short-term debt burden. Liquid markets mean foreign investors can move in and out quickly, making them vulnerable to capital flight.

So far, capital flows out of South Korea have not matched the levels seen at the height of the 2008 global financial crisis. But the government has spent billions of dollars to defend the won in recent weeks. (Editing by Jonathan Hopfner)

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