The Korea Stock Exchange composite price index had lost 18.67 points to 313.23 by the mid-day break. Decliners outpaced gainers by 715 to 56 with 103 stocks going limit down.

"The market is beginning to collapse," said broker Park Si-jin at Hanwha Securities. "The period when foreign investors re-enter the market will be the time for the stock market to turn around, but when that will happen will be anybody's guess."

Brokers said expected strikes by South Korea's largest automaker Hyundai Motor took their toll in the morning session. Hyundai Motor Union said 89.4 per cent of its members had voted in favour of a two-day strike starting on Wednesday.

"Unless management announces that it will scrap its plans to lay off workers, we will start a two-day strike from 1 pm (0400 GMT)tomorrow which will end at 8 am (2300 GMT, May 28) on Friday," said Kim Hee-hwan, a senior official at the Hyundai Motor Union.

Hyundai is staging its action in conjunction with the umbrella Korean Confederation of Trade Unions, which has called for nationwide work stoppages to protest layoffs.

Hyundai Motor briefly went limit down to 14,800 won but rebounded to 14,900, down 1,900 by mid day.

Another gloomy report came from the state-supported Korea Institute of Finance.

The research body said Korea's gross domestic product was expected to contract by 3.1 per cent and the unemployment rate to surge to 8.9 per cent this year.

The institute said economic contraction was inevitable because of market instability as a result of Asia's financial crisis and upheavals caused by restructuring in the corporate and financial sectors.

It said it feared corporate bankruptcies and a high unemployment rate would linger because financial institutions, themselves in need of recapitalisation, were tightening up onlending, they added.

Disappointment over lethargic foreign investment and an expectation of more corporate bankruptcies as a result of financial and corporate restructuring were blamed for the market's plunge.

Brokers said investors believed the most painful restructuring would occur after the June 4 local elections.

South Korea scrapped the previous 55 per cent foreign stockholding limit from Monday, but foreigners were generally uninterested in Korean shares except for Pohang Iron and Steel Co and a handful of blue chips.

"The stockmarket on Monday just witnessed there was plenty of selling pressure awaiting," said broker Choi Dong-chul at Ssangyong Securities.

Brokers said the yen's weakness against the dollar also cast gloom on blue chips as they were seen as the last resort for Korea's economic growth and its future.

The dollar was quoted well above 137 yen. Posco lost 7.29 per cent to 48,300 and Samsung Electronics shed 5.51 per cent at 46,300. Kepco fell 3.38 per cent to 14,300.And brokerssaid blue chips could fall further.

"If the "Maginot Line" of 300 will be breached, the market will plunge again," Choi said.