South Korea's financial crisis deepened yesterday as the government closed more merchant banks, and the country's battered markets reacted warily to government stabilisation measures.

For average Koreans, especially those with money in the closed merchant banks, the bitterly cold day was filled with despair.

"Why won't they give me my money. It's all I have," said one older woman outside a closed merchant bank blocked by riot police in central Seoul.

It was unclear when she would be able to withdraw her money, although the government has guaranteed all deposits with financial institutions.

President Kim Young-sam was expected to apologise to the nation this morning, in his second act of contrition in the past month for the economic crisis.

The finance ministry said before markets opened it had suspended the business operations of five more merchant banks until January 31st.

"Five merchant banks were now unable to pay their loans, estimated at a combined one trillion won (US$700 million) daily. They were only disturbing operations of other merchant banks and corporates," finance minister Lim Chang-yuel told a news conference.

"But we will firmly support the remaining merchant banks by moving the state deposits to them," Mr Lim said.

The merchant banks were ordered to submit plans for capital increases or mergers and acquisitions by the end of the year.

Nine other merchant banks were temporarily closed last week.

Analysts said confidence in the South Korean government had evaporated despite a record US$57 billion rescue package announced last week by the International Monetary Fund.

The won currency plunged 10 per cent - its daily trading limit - to 1,565.9, a historic low, from Tuesday's close of 1,460. Dealers said the currency encountered no resistance on its way down.

"Korea's financial markets are becoming panicky," said a local bank foreign exchange dealer. "Nobody can believe the government."

Concerns about the country's short-term debt and how much of it comes due by year-end were behind the panic.

The IMF put short-term debt at about $100 billion at end-September, with analysts and dealers estimating $17 billion to $20 billion due by the end of December.

Stocks closed up more than three per cent at 399.85 points in a day of heavy, volatile trading, but analysts said the positive sentiment was fleeting.