The cost of insuring South Korea's sovereign debt against default climbed sharply in the face of global financial sector woes, data showed Sunday.

The credit default swap (CDS) premium on South Korea's foreign currency bonds with five-year maturities reached 177 basis points as of Friday on the New York market, up 2 basis points from the previous day, according to the data by the Korea Center for International Finance (KCIF). A basis point is 0.01 percentage points.

The increase comes after the country's CDS fell to 127 basis points as of Oct. 28 from a high of 229 basis points tallied on Oct. 4.

In addition, the institute set up in 1999 by the government and the Bank of Korea said the CDS of seven local commercial banks reached an average of 222 basis points as of late last week, up from 169 basis points tallied at the end of last month.

The spread on CDS reflects the cost of hedging credit risks on corporate or sovereign debt. A steep rise indicates a deterioration in the credit of South Korean government bonds and higher costs for bond issuances.

Higher premiums can also push up financial lending costs of local banks that can affect the performance of businesses and raise overall economic uncertainties.

The KCIF said the surge in premiums reflects the ongoing eurozone crisis that has spread to countries like France and Germany. Such developments can disrupt the global financial markets and cripple economic growth.

Besides external factors, the CDS rise comes as South Korea's benchmark KOSPI stock index fell under the 1,800 mark in last week's trading, with the Korean won losing ground against the U.S.

dollar. A weak bourse and fluctuations in the exchange rate can cause foreign investors to leave the market, it said. (Yonhap News)