By Joori Roh
SEOUL (Reuters) - South Korea's financial authorities said on Tuesday they would act quickly if volatility in the country's markets is excessive.
In a central bank statement, Governor Lee Ju-yeol said uncertainties have sharply risen on the escalating U.S.-China trade war, highlighting that stability in foreign exchange market is especially crucial.
Earlier, the finance ministry and the financial regulator said they would take measures to curb market volatility in the wake of the United States declaring China a currency manipulator.
"The government will take quick and bold market stabilisation measures if volatility in financial markets excessively rises," Deputy Finance Minister Bahng Ki-sun said.
Early on Tuesday, the won fell to a near 3-1/2 year low of 1,223.0 per dollar, but then Korean authorities were suspected of selling dollars to help the won recover to 1,214.8, two dealers told Reuters.
At 0600 GMT, the stock market's benchmark KOSPI index was down 1.3%, after earlier being down 2.8% to its lowest level since February 2016.
The three-year treasury bond yield was quoted at 1.185% after hitting an all-time low of 1.172% on Monday.
"Markets have trimmed losses after excessive reaction," said Seo Sang-young, analyst at Kiwoom Securities.
But government policies are not major factors that decide the market supply and demand, Seo added.
South Korea's financial markets have already been shaken by sluggish exports and Japan's export curbs on key chip and display production materials. On Friday, Japan also decided to remove Korea from fast-track export status.
The Financial Services Commission said that the government is considering tightening short-selling rules while strengthening the role of institutional investors.
Asked whether South Korea would be affected by the U.S. decision on China, Deputy Minister Kim Hoe-jeong told reporters that it will not be impacted and that the nation's situation is different from China.
Asked about the won's exchange rate with the yuan, Kim said the ministry was "closely monitoring won coupling with yuan," but added that it is not targeting a specific currency level.
(Reporting by Joori Roh, Yuna Park, additional reporting by Yena Park and Hayoung Choi; Editing by Sam Holmes and Neil Fullick)