South Korea plans to implement measures to stabilize the market in a timely manner if needed as market volatility has increased amid external economic risks, a senior government official said Thursday.

First Vice Finance Minister Lee Eog-weon said the Korean financial market has been "excessively" volatile in recent sessions despite the country's strong macroeconomic fundamentals.

South Korea's benchmark index, the Kospi, nosedived nearly 2 percent and the Korean currency fell to a 14-month low against the US dollar Wednesday over the debt crises of Chinese property developers and the impasse in the US Congress on raising the debt limit.

The Kospi traded higher Thursday on bargain hunting with the stock prices trading at 2,947.76, up 39.45 points, or 1.36 percent as of 10:02 a.m. The local currency was trading at 1,189.60 per the greenback, up 2.70 won from the previous session.

"There is a possibility that the global and local financial markets could see an additional increase in fluctuations, depending on how external economic risks play out," Lee said at a government meeting on the economy and market.

"But given its fundamentals, the Korean market has shown somewhat excessive response," he said.

The official said the government will closely monitor the financial market as uncertainty from external economic risks lingers, and take actions to stabilize it when needed.

Concerns about rising global inflation and uncertainty over the Federal Reserve's tapering of bond purchases have weighed on market sentiments. There also remains caution among market players over the scheduled payment of bond interests by the debt-ridden Chinese Evergrande Group.

Despite increased market volatility, South Korea has successfully sold about $1.3 billion worth of foreign exchange stabilization bonds at the second-lowest ever rates amid solid demand.

The country's debt risk premium has mostly remained at the lowest level since the 2008-09 global financial crisis as the economy is currently recovering faster from the pandemic, according to the finance ministry. (Yonhap)