South Korea's financial watchdog said Wednesday it would lift a ban on short-selling of non-financial stocks amid signs of more global financial stability.

The ban imposed last October, as world markets plummeted, will be removed from June 1, the Financial Services Commission (FSC) said.

Short-selling involves a dealer offloading borrowed stocks in the hope that the price will decline and they can be bought back at a lower price. The practice was partly blamed for South Korea's KOSPI tumbling to below 900 points in late October.

However, markets have stabilised amid signs that the world economic decline may be reaching bottom. KOSPI closed Wednesday at 1,435.70.

FSC director-general Hong Young-Man said a ban on short-selling of financial stocks would stay in place pending further monitoring of markets.