The government will actively work to stabilize the equity market by setting up a 500 billion-won ($438.4 million) fund that can be injected into local stocks, the country's financial regulator said Monday.

Kim Yong-beom, vice chairman of the Financial Services Commission, made the remarks at a meeting with senior executives from brokerages, as he sought to reassure investors amid a sharp decline in stock prices.

South Korea's benchmark stock index sank nearly 6 percent last week as foreign investors remained net sellers of local stocks.

The Korea Composite Stock Price Index has dived about 20 percent from its peak so far this year, due to a lingering trade spat between Washington and Beijing, and fears of interest rate hikes in the United States.

In October alone, foreign investors sold a net 4.5 trillion won worth of local stocks, Kim told the meeting.

Kim attributed the recent sharp decline in local stocks to growing worries about the global economy amid a rise in borrowing costs of developed economies.

The government will increase a fund of 200 billion won for the secondary KOSDAQ market to 300 billion won and the fund will start being used next month, Kim said.

Another fund of 200 billion won will be raised to invest in both the KOSPI and KOSDAQ markets, Kim said. (Yonhap)