*

South Korea ready to inject unlimited liquidity into

markets

*

BOK to start repo operations, loosen collateral policies

*

Political turmoil adds uncertainty to economy, budget

deadlock

persists

(Adds BOK's liquidity support measures in paragraphs 2, 6-7,

context)

By Cynthia Kim

SEOUL, Dec 4 (Reuters) - South Korea's finance ministry

said on Wednesday it was ready to deploy "unlimited" liquidity

into financial markets after President Yoon Suk Yeol lifted a

martial law declaration he imposed overnight that pushed the won

to multi-year lows.

The announcement came after Finance Minister Choi Sang-mok

and Bank of Korea Governor Rhee Chang-yong held emergency talks

overnight, and as the central bank board abruptly met to approve

rescue measures for the local credit market.

While financial markets found their footing in Wednesday

trade, with the won higher and stocks trimming some losses,

investors remain wary about longer-term political stability in

South Korea, which has been seeking to make its markets more

global.

"All financial, FX markets as well as stock markets will

operate normally," the government said in a statement.

"We will inject unlimited liquidity into stocks, bonds,

short-term money market as well as forex market for the time

being until they are fully normalised."

The BOK said it will start special repo operations from

Wednesday for local financial institutions to support smooth

market functioning.

It also said it would loosen repo collateral policies by

accepting bank debentures issued by some state-run enterprises.

The financial regulator added it was ready to deploy 10

trillion won ($7.07 billion) in a stock market stabilisation

fund any time, the Yonhap news agency said.

South Korea's won gained 0.8% as of 0212

GMT, coming off the two-year low of 1,442.0 hit overnight after

Yoon's shock martial law declaration.

Local foreign exchange dealers suspected authorities sold

dollars as part of smoothing operations, intervening hard as

soon as markets opened to limit a decline in the won.

South Korea's parliament, with 190 of its 300 members

present, unanimously passed a motion early Wednesday requiring

the martial law be lifted.

Korean shares fell 2% on Wednesday with chipmaker

Samsung Electronics ( SSNLF ) down 1.31% and battery maker LG

Energy Solution off 2.64%.

The KOSPI index and won are among Asia's worst performing

assets this year.

Overnight, U.S.-listed South Korean stocks fell, while

exchange-traded products in New York including iShares MSCI

South Korea ETF and Franklin FTSE South Korea ETF

lost about 1% each.

"Martial law itself has been lifted but this incident

creates more uncertainty in the political landscape and the

economy," ING economists wrote.

FISCAL RISKS

The political turmoil comes as Yoon and the

opposition-controlled parliament clash over the budget and other

measures.

The opposition Democratic Party last week cut 4.1 trillion

won from the Yoon government's proposed 677.4 trillion won

($470.7 billion) budget, putting parliament in a deadlock over

spending.

The parliamentary speaker on Monday stopped the revised

budget from going to a final vote.

A successful budget intervention by the opposition would

deal a major blow to Yoon's minority government and risk

shrinking fiscal spending at a time when export growth is

cooling.

"The negative impact to the economy and financial market

could be short-lived as uncertainties on political and economic

environment could be quickly mitigated on the back of proactive

policy response," Citi economist Kim Jin-wook said in a report.