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(Updates with vice fin min, analysts, markets)
By Cheon Jong-woo
SEOUL, Dec 3 (Reuters) - South Korea's foreign exchange reserves fell to their lowest in almost four years, data showed on Wednesday, sapped by foreign currency liquidity injections into the banking system to combat the global credit crisis.
The country's foreign reserves dropped by $11.7 billion in November to $200.5 billion the lowest since the end of January 2005, when they stood at $199.7 billion.
"The foreign exchange authorities steadily injected foreign currency liquidity to ease uncertainty in the local foreign currency money market due to a persistent global credit crunch," the Bank of Korea said.
The central bank and finance ministry followed up the news with remarks that the reserves would continue to fall as they lay out dollars to keep the financial system stable.
"I cautiously expect our foreign exchange reserve not to fall that much," Vice Finance Minister Kim Dong-soo said in an interview with local radio when asked whether foreign exchange reserves would fall further.
Analysts agreed that further reserve shrinkage looked set to be moderate, given an improvement in the current account, a $30 billion dollar credit line at the U.S. Federal Reserves and liquidity injections by other central banks.
"It is inevitable for the reserves to fall further, given liquidity injections, although the losses are unlikely to be serious. That will drag down the won whose bearish factors such as an economic slowdown remain intact," said Jeong My-young, a currency strategist at Samsung Futures Inc.
Worry that the nation's foreign exchange reserves, the sixth largest in the world, would dip below $200 billion have been fanning investor concerns over a fresh currency crisis similar to the one that battered South Korea over a decade ago.
The local currency erased most of its early gains of up to
1.6 percent, quoted at 1,463.4/6.60 per dollar as of 0245 GMT,
against Tuesday's domestic close
Asia's worst performing currency has fallen some 36 percent against the dollar so far this year and hit its lowest level in almost 11 years on Nov. 21.
MORE FX INJECTION
The Bank of Korea and the government have injected $31.9 billion in foreign currency liquidity into the banking system in October and November, out of a planned $55 billion, the BOK said.
The liquidity injection figure includes $7.5 billion provided by swap deals in November, it added.
The reserves have fallen more than $50 billion since June. Authorities have sold dollars to support a rapidly falling won and injected billions of dollars in stabilisation moves.
The finance ministry said in a statement that the country planned to continue to carry out "smoothing operations" to stabilise its currency.
But some experts said the authorities should give up supporting the won to keep the reserves for future uses.
"The government cannot afford to protect the foreign reserves and the won together now. It should make a strategic decision, opting for the reserves to fend off another currency crisis," said Han Joon-ho, an international finance professor at Yonsei University.
The Bank of Korea said 90.8 percent of the reserves were invested in securities, followed by 8.8 percent deposited at financial institutions.
As of the end of October, South Korea had the world's sixth-largest foreign exchange reserves after China, Japan, Russia, India and Taiwan, the central bank said. (Additional reporting by Seo Eun-kyung; Editing by Keiron Henderson)