Seoul - South Korean companies and financial markets will feel the after-effect of the collapse of US investment bank Lehman Brothers in the short term, but officials and analysts are confident that the economy can cope with the turmoil in the long term.

Finance Minister Kang Man Soo told the parliament's financial committee on Wednesday he expected that foreign investors would continue to abandon their interests in the country for the time being.

But it would be unlikely that South Korea will suffer serious repercussions from the current US financial woes, despite the flight of foreign investors, Kang was quoted by the public broadcast station KBS as saying.

Meanwhile, an official of the Financial Services Commission (FSC) told reporters that he believes that local financial markets "overreacted" to the collapse of Lehman Brothers, the fourth-largest US investment bank, earlier this week.

"US financial market jitters could affect the South Korean market temporarily. But local financial firms have enough capacity to cope with overseas instability and the impact should be limited on the local market," Kim Yong Hwan, standing commissioner of the FSC, was quoted as saying by the national Yonhap news agency.

South Korean banks and other companies invested only about 720 million dollars with Lehman.

South Korea's benchmark stock index tumbled Tuesday 6.1 per cent to close at a 18-month low. On the same day, the Korean currency fell to a 49-month low against the dollar on concerns over economic instability in the aftermath of the Lehman collapse.

South Korean shares closed sharply higher Wednesday as investor sentiment was boosted by a US plan to bail out troubled insurer American International Group.

While many market watchers agree with the government's view that the impact by the Lehman debacle on South Korea would be rather short time, some also call for a better strategy to check on risky investments.

"Given the limited exposure that the financial companies have invested with Lehman, the impact should be fairly short term," Daniel Han from Daishin Securities in Seoul said.

The governor of the central bank in Seoul, Lee Seong Tae, told lawmakers that his institution would supply liquidity at the right time by buying government bonds directly from the market if needed. dpa