SEOUL - South Korea's central bank is likely to inject up to $3.3 billion into a state fund aimed at easing a credit squeeze in the country's debt market, a report said Sunday.

The Financial Services Commission, the country's financial watchdog, has promised to set up a 10-trillion-won ($6.7 billion) bond fund by pooling money from banks, pension funds and others.

The Bank of Korea is highly likely to contribute up to five trillion won to the fund, which will be used to buy financial and corporate debts, Yonhap news agency said.

It is slated to hold a policy meeting on Monday to finalise the amount, Yonhap said.

South Korea has announced a series of steps to stabilise its markets, including $16 billion in loans to ease a dollar shortage for firms importing raw materials and exporting goods.

Last week the state-owned Industrial Bank of Korea (IBK) said it plans to extend up to 12 trillion won in loans next year to help cash-strapped smaller firms.

The figure would represent a 20 percent rise from this year's planned lending.

Private banks have been increasingly reluctant to extend loans, especially to smaller firms as credit dries up even though the export-led economy is slowing down.

Corporate bankruptcies hit a three-year high in October amid tightening financial conditions caused by the global credit crisis.

The central bank said the number of firms declaring bankruptcy rose from 203 in September to 321 in October, the highest monthly figure since March 2005.

The economy grew 0.6 percent quarter-on-quarter in July to September, the slowest quarter-on-quarter growth in four years as households and smaller firms struggled with mounting debt and increasingly cut spending.