SOUTH Korea's central bank slashed its key interest rate yesterday in a bid to boost the economy and stock market amid the global financial crisis.

The country's president said the government would cut taxes and boost public spending.

The Bank of Korea said it lowered its benchmark seven-day repurchase rate from 5 percent to 4.25 percent at a special meeting. It was the largest-ever cut under the central bank's current policy set-up, said spokesman Kim Seong.

The bank said that a big cut was needed "to guard securely against the possibility of a sharp contraction of real economic activity" citing "large swings of the exchange rate and stock prices and the partial seizing up of the credit markets" due to the impact of global financial turmoil.

The decision came as South Korean markets suffer due to the world financial turmoil. The country's benchmark stock index lost one-fifth of its value last week, its worst weekly performance on record. The won currency has also fallen sharply.

The Korea Composite Stock Price Index rose as much as 2.9 percent after the decision was announced, though buying momentum weakened and the index slipped into negative territory, declining 0.7 percent to 932.30 after about 2 1/2 hours of trading.

The South Korean won also fell against the United States dollar, trading at 1441.50, or down 1.4 percent from Friday. The won has fallen about 35 percent this year.

Yesterday's decision came at a rare interim policy meeting and follows a cut of a quarter percentage point at a regular policy meeting earlier this month. It was the second such unscheduled meeting for the bank since its current policy was established in 1998. The previous one came after the September 11, 2001 terror attacks in the US when the bank cut its key rate by half a percentage point.