Seoul - South Korea's central bank on Monday announced its largest-ever rate cut, sinking its key rate by 0.75 percentage points to 4.25%, as it seeks to stave off more dire repercussions from the global financial crisis.

The Bank of Korea said "a large cut in the base rate is called for in order to guard securely against the possibility of a sharp contraction of real economic activity against the backdrop of the large swings of the exchange rate and stock prices and the partial seizing-up of the credit markets."

It last cut its seven-day repurchase rate - which is important in setting interest rates that banks charge one another for lending - less than three weeks ago by 0.25 percentage points.

South Korea has been hard-hit by the global financial crisis, seeing its toughest economic times since the 1997-98 Asian financial crisis when it needed an International Monetary Fund bailout.

Last week, the benchmark Kospi stock index fall 20%, its worst weekly showing since 1997, while the South Korean currency, the won, has fallen 36% so far this year. Credit has also dried up as a result of the financial crisis.

Investors worried, however, that the rate cut would put more downward pressure on the won and would do little to slow South Korea's economic downturn. The Kospi sank 4.14% to 899.87 by mid-afternoon.

The Bank of Korea also dropped the interest rate for loans for small and medium-sized businesses to 2.5% from 3.2%.

- Sapa-dpa