"The decline (in September) is largely attributable to the increased scale of the authorities' intervention in the swap market amid the global credit crunch," said Ha Geun-chul, an official at the Bank of Korea.

Central banks intervene in the currency markets by either selling or buying foreign exchange.

Concerns are growing over the shrinking pool of foreign-currency reserves, as the local currency keeps plunging despite all the reserve dollars spent to strengthen it.

The instability mostly stems from the global financial crisis sparked by the collapse of Lehman Brothers and the government bailout of other financial firms in the United States.

The won fell 3.1 per cent yesterday to 1,223.5 per dollar, the lowest since April 2003, according to Seoul Money Brokerage Services Ltd. The currency fell 9.8 per cent in September against the dollar, its biggest monthly loss, since the 1997 Asian financial crisis.

Korean government officials say that the reserves are still sufficient and that they will continue to use them in order to stabilize the foreign exchange market.

"It is appropriate to use foreign reserves to stabilise the currency market at times like this," finance minister Kang Man-soo said, playing down concerns about the level of reserves. The government will provide $5 billion in foreign currency, through state-run Korea Eximbank, to small and medium-sized exporters which are struggling to secure dollars amid the global credit crunch.

That adds to the $10 billion fund that the government said it will supply in US currency to the local won-dollar swap market.

Park Byung-won, President Lee Myung-bak's chief economic adviser at Cheong Wa Dae, said worries that the country is spending too much out of the reserves, so much so that it may be vulnerable to a prolonged and more serious crisis is "unrealistic."

"I think we've still got enough in reserves," Park said in a radio program.

For some investors, however, the country's costly fight to defend the won and dwindling foreign reserves echoes what happened 11 years ago.

In 1997, the country fought what was in the end a futile battle on behalf of its currency as a foreign currency crisis spread across Asia. Unable to repay short-term foreign debt, it sought a $20-billion bailout from the International Monetary Fund.

The country had $33.2 billion in reserves at the end of 1996.

Now, Korea has built up substantial dollar reserves, ranking sixth in the world. Yet, questions remain whether the country has enough money readily available to deal with a prolonged crisis, analysts said.

At the end of June, Korea had about $222.3 billion in short-term foreign debt that must be serviced within a year.

"The short-term foreign debt tally includes money that foreign banks lent to their units in Korea and advance payments made to Korean shipyards by foreign customers," said Yi Jong-goo, a standing commissioner of the Financial Supervisory Commission.

"Taking all these into account, Korea has enough reserves available," he said.