The credit rating agency Fitch has raised South Korea's debt rating by two notches in a move which indicates faith in the country's economic strength.

The upgrade reflects "the international financial community's firm belief that [the] economy will sustain solid economic growth despite an unfavourable external economic situation", said South Korea's ministry of finance and economy.

The rating upgrade helped lift South Korea's index as much as 2.9% to a high of 721.97 points, though it pared some of its gains to close 1.2% higher on the day.

However, some investors were spooked by hints of delays to the country's planned privatisations and failed to share Fitch's optimism.

On the day before the upgrade, South Korea's stock markets plunged as a result of the WorldCom scandal in the US.

Following this sharp slide, vice finance and economy minister Yoon Jin-Shik said "the government will flexibly adjust the timing and the amount of stock sales and issues in connection with the privatisation of public firms and financial institutions."

The government is also thought to be looking at measures to help boost the stock market.

The finance minister told an economic policy consultative meeting that the government would guide some pensions funds to invest in stocks away from bonds.