By Park Jung-youn and Yoo Choonsik

The battered won rose for the first time in seven sessions on prospects for global rate cuts, but stocks <.KS11> gave up an 8 percent gain to close down in volatile trading partly fueled by speculation the country might seek IMF support.

Authorities denied the speculation, which had provided an uncomfortable reminder of the country's IMF-led bailout in the Asian financial crisis a decade ago.

"Rumors about the IMF blew up out of proportion," said Oh Hyun-seok, a senior market analyst at Samsung Securities.

"South Korea may request a currency swap with the IMF, but this is in no way the kind of help countries like Iceland are getting. People freak out whenever they hear the word 'IMF' as it conjures up the memory of Asian currency crisis in 1997," Oh said.

South Korea's financial markets have taken a beating in the past month on concern the country's banks could fall victim to the global credit crunch that has toppled financial institutions in from the United States to Iceland.

Adding to a raft of measures announced in the past month to fend off the global crisis, the government said it would ease won liquidity requirements on banks to help bring down their funding costs.

The country's parliament could pass as early as Thursday a $100 billion plan to help banks by guaranteeing their future foreign debt borrowings.

The government also plans to announce, around the weekend, steps to boost sectors such as construction, a local online media outlet quoted a presidential spokesman as saying.

Stimulus measures, including increased government spending, cuts in income and other taxes are also on the cards, the daily JoongAng Ilbo newspaper reported, citing financial government sources.

To keep costs under control, the government may freeze public sector wages and personnel levels next year, Yonhap news agency said.

South Korean banks have struggled to raise funds to roll over short-term foreign currency debt, most of it linked to trade financing, making them look among Asia's most vulnerable.

But unlike the Asian financial crisis in 1997/98, bank solvency is not seen as an issue because of the strong position of the country's conglomerates after years of booming exports.

Authorities declined to comment on a Yonhap report that South Korea was likely to sign a currency swap contract with the U.S. Federal Reserve to ease its dollar funding shortage.

Financial authorities, still skittish about a $60 billion IMF-led package that bailed the country out of the Asian financial crisis, said they had no plans to accept IMF support again because they had sufficient foreign currency reserves, local media said.

At about $240 billion, the reserves are the world's sixth-biggest.

VOLATILITY

Seoul shares swung around by about 15 percent on Wednesday, the biggest intraday percentage shift on record, Reuters data shows. The main index has dropped a third this month.

Shares ended in the red despite the National Pension Service stepping to buy for the second straight session.

The troubled South Korean won, which has fallen by about 18 percent against the U.S. dollar this month alone, was boosted by the prospects that global cuts in interest rates would support demand in the country's export markets.

The currency rallied nearly 9 percent at one point on Wednesday against the dollar before closing local trading up 2.9 percent, continuing a roller coaster ride this month.

However, Park Hyo-jin, a market analyst at Goodmorning Shinhan Securities, suggested the worst of the volatility could be over.

"The won's gain today moved it a step closer to the normalization of the foreign exchange rate," he said.

Some stock markets and currencies across the region were given a boost by expectations that the U.S. Federal Reserve would cut its benchmark interest rate later on Wednesday by half a percentage point to 1 percent.

The Bank of Japan could follow suit with a cut on Friday and the European Central Bank and the Bank of England are expected to reduce rates next week.

The won's slide this year was sparked by the capital outflow from investors selling emerging market assets and the soaring cost of imports such as oil, which have swung the current account surplus into a deficit.

South Korea's central bank already slashed its main interest by 75 basis points on Monday to 4.25 percent, its largest single cut on record, to try to boost Asia's fourth-largest economy and restore confidence among investors.

It cut the rate by 25 basis points earlier in the month hot on the heels of globally coordinated cuts by major central banks.

(Additional reporting by Cheon Jong-woo and Seo Eun-kyung; Writing by Jon Herskovitz; Editing by Neil Fullick)