The World Bank approved a $3bn loan to South Korea on Tuesday, providing the money with unusual speed to avoid loan defaults that could send shock waves through the global financial system.

Normally, major World Bank loans take as long as a year to negotiate.

The World Bank spokesman Mark Malloch Brown explains why the loan has been given (Dur: 22")

Officials said the action, part of a record $57bn bailout package, was aimed at achieving long-term stabilization and growth in the world's 11th largest economy.

The cash infusion is needed to satisfy short-term creditors who are demanding $15bn from South Korea by the end of the year.

An additional $1bn in short-term loans is due in January, aides to President-elect Kim Dae-jung have said.

BBC Economics Correspondent, Peter Morgan: Crisis could have far-reaching repercussions (1'10")

Tuesday's action by the 181-nation bank follows a decision last week by the Asian Development Bank to provide $4bn.

The loans are part of a worldwide rescue package for the Seoul government arranged by the International Monetary Fund, the World Bank's sister organization.

The overall bailout includes $5bn in federal money from the United States, which like other economies worldwide is feeling the effects of the crisis in Korea and other Asian nations.

Playing the numbers game...

The entire amount is being made available immediately under an emergency formula last used to help European economies devastated during the Second World War.

Its currency, the won, plummeted again on Tuesday, touching 2,000 against the dollar for the first time ever and dragging stock prices down with it amid fears of a foreign debt default.

South Korea turned reluctantly to the international community for help last month as its financial system crumbled under the strain of bad loans and a weakening currency.

Another Black Tuesday

The 14% plunge of the won, which has already lost half its value against the US dollar, prompted a selling spree on the Korea Stock Exchange, which closed 7.5% down at 366.36.

The won closed at 1,963 to the dollar after pressure eased slightly in late trading.

Some Christmas cheer on Wall Street, despite South Korea's problems

Blue chip shares such as Samsung Electronics, Korea Electric Power, SK Telecoms and several banks led the slide, making it clear the worst of the financial turmoil is far from over.

The won's free-fall was fuelled by statements by South Korea's President-elect Kim Dae-Jung.

Stocks on Wall Street closed sharply lower on Tuesday, unable to ignore the latest twists in the Asian saga.

The Dow Jones industrial average ended down 127.54 points, or 1.6 percent, at 7,691.77.

In the broader market, declining issues led advances 15-13 on active volume of more than 518 million shares on the New York Stock Exchange.

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