The $30 billion currency swap deal reached overnight between Seoul and Washington will help ease investor worries that Korea may face another currency crisis, a decade after it was bailed out by the International Monetary Fund, experts said yesterday.

"Having the US Federal Reserve as a dollar liquidity backstop means a lot for Korea. It will surely bring some stability to the local financial markets," said Kwon Soon-woo, a senior researcher at Samsung Economic Research Institute.

The US Federal Reserve said yesterday it has set up a $30 billion currency swap line with the Bank of Korea and central banks in three other countries, expanding its efforts to thaw money markets to emerging economies for the first time.

"Above all, the deal will help soothe investors' nerves about the Korea's financial markets, which was the main reason behind the won's excessive drop against the dollar," BOK Governor Lee Seong-tae said in Seoul.

Finance Minister Kang Man-soo said that the country is pursuing a similar deal with Japan and China and global cooperation on the ongoing financial crisis.

Local stocks and currency pulled off a stunning rally yesterday as investors took relief from the currency swap. In another major boost, the country's current account deficit narrowed to $1.22 billion in September, from a record $4.7 billion in August, signaling a trend toward year-end improvement.

"In October, it is likely to be a surplus of $1 billion or even bigger," said Yang Jae-ryong, head of the BOK's balance of payments statistics team.

The currency swap agreement, effective until the end of April, allows the Bank of Korea to receive dollars from its US counterpart, whenever necessary, and then provide them to local banks short on US currency.

The Korean authorities have rolled out a series of measures aimed at aiding the embattled banking system, including guaranteeing up to $100 billion of local banks' new foreign debt and the BOK's direct purchase of domestic banks bonds.

A currency swap is an arrangement in which two parties exchange specific amounts of different currencies; pay interest on the money to each other; and exchange back the initial amounts when the deal matures.

The United States has established such deals with a total of 14 countries, with the European Union, Switzerland, the United Kingdom and Japan among them.