(Adds details, bond fund plan, minister comment on swap deal)
By Cheon Jong-woo and Seo Eun-kyung
SEOUL, Nov 13 (Reuters) - South Korea said on Thursday it plans to offer $16 billion of foreign currency liquidity to help local exporters ease their dollar shortages and to set up a $7.2 billion bond fund for domestic companies to raise money.
The twin measures are the latest in a string of steps taken by the government of Asia's fourth-largest economy to protect cash-starved corporate sectors whose survival is essential to the export-driven economy.
The Bank of Korea will offer a fresh $10 billion to exporters for trade finance and the Finance Ministry will provide the $6 billion for both exporters and importers, for a total of $16 billion.
The Finance Ministry said in a statement that the $6 billion it would bring was part of a previously planned liquidity support of $20 billion.
The measures were announced as local exporters are facing growing difficulties persuading banks to open letters of credit, while a global recession looms along with a credit crunch.
Analysts welcomed the measures but questioned the timing as
the stock market <.KS11> lost another three percent to be down 42
percent since the start of the year and the won
"Today's measures are of course good news for the financial markets as well as cash-short companies but they appear to have come a bit late," said Kong Dong-rak, a fixed-income analyst at Hana Daetoo Securities.
South Korea's export dependent economy is seen as especially vulnerable to the fall-out from the credit crunch and the looming global economic recession.
"Everybody still needs more water now to put out their fires. The government should act more aggressively and pour in money to quell the liquidity crunch," said Kong.
With Thursday's measures, the country's foreign currency liquidity support plan was expanded to $55 billion from $45 billion, the ministry said.
The new liquidity support plan should be sufficient to help local funding shortages unless external factors get worse, Sohn Byung-doo, a director at the ministry's international finance bureau, told reporters.
The Bank of Korea also said it would expand foreign currency liquidity support via long-term currency swaps to improve dollar liquidity conditions in the longer-term swaps markets.
Sohn said the central bank would use mostly one-year swaps.
In addition, the government plans to set up a 10 trillion won ($7.19 billion) fund to invest in bonds in a bid to help ease the liquidity squeeze at many local companies.
The plan came a week after the Korea Exchange and other market-related bodies agreed to form a 500 billion won ($359.6 million) fund to invest in the domestic equity market.
Meanwhile the country's Finance Minister Kang Man-soo said he expected currency swap progress with China as the two countries had agreed to expand currency swap lines "in principle," but added South Korea would take its time in expanding bilateral currency swap lines with China and Japan.
Kang is scheduled to meet his counterparts from Japan and China on Friday in Washington on the sidelines of a G20 meeting to discuss ways to jointly tackle the global financial crisis. (Additional reporting by Lee Shin-hyung and Chang Tae-min) (Editing by Marie-France Han and x)