By Jack Kim

Lee also said in a budget speech to parliament that he would pursue deregulation of the financial services sector despite the global crisis to improve competition, but would also tighten supervision to ensure capital was safeguarded.

"The government will provide sufficient liquidity preemptively and decisively until the markets overcome uncertainty," he said.

South Korea's central bank cut its main interest rate by 75 basis points in an unscheduled meeting on Monday to prop up Asia's fourth-largest economy.

Seoul shares <.KS11> rose following the wider-than-expected rate cut, climbing 0.91 percent as of 9:39 p.m. EDT, but gains were limited as some investors continued to cash out on the prospect of a persistent global downturn.

Lee said the turmoil engulfing South Korea's markets today was different from the Asian financial crisis of 1997/98 as the country had sufficient foreign reserves of $240 billion, which had declined only slightly from the beginning of the year.

The solution to the current crisis must also be different from a decade ago, Lee said in the rare address to parliament that was televised nationally.

"The government plans to expand the role of fiscal spending in the face of the global downturn in the real economy," he said, adding its priority would be capital expenditure and funding to small and medium businesses and the service sector.

"Next year, we will increase disposable income through tax cuts equivalent to 13 trillion won ($9.1 billion) and stimulate investment," he said.

Lee noted the growing consensus on the need to reform the global financial system and said he would voice support for it when world leaders meet in Washington on November 15.

Lee said South Korea intended to pursue deregulation of the financial sector despite the crisis to improve competition.

"We cannot leave a financial industry that is lagging in competition compared to the scale of our economy," he said. "On the other hand, we need to strengthen credit review and supervision of the safety of assets."

(Editing by Jonathan Hopfner)