THE South Korean Government's move to apply the brakes to its slowly recovering stock market has been slammed by foreign brokers as ludicrous and unwarranted. While most of the region's markets have fallen back recently, most foreign brokers believe Seoul is still undervalued. Analysts say manipulation of the stock market brings into question the sincerity of President Kim Young-sam's reform drive. Given that December's market recovery had followed a two-year slump, analysts reacted in amazement to measures introduced last week to cool stocks down. Only six months ago, the Government was taking steps to boost the market, which had dropped as low as 459.07 points on August 21, 1992. With the market surging in the second half of last year on optimism about economic recovery, the Seoul composite stock index broke the 900-point barrier twice before closing at 898.66 on Thursday. The next day the Government suddenly ordered financial institutions and banks to abstain from buying. It ordered the Korea Stock Market Stabilisation fund to offload stocks and suddenly required local and financial institutions to back up buy orders with deposits at local banks. The moves led to the market falling 20 points on Friday, 16 points on Saturday and another five yesterday to close at 863.25 points. ''Unlike the other regional markets, where many markets were overpriced, there was no need for a correction,'' said one broker. ''There's absolutely nothing to cool down. It is the most ludicrous decision I have ever come across. ''It just shows that the financial authorities here know absolutely nothing about the workings of a stock market. With the market, which was for most of last year the most under-performed bourse in Asia, showing signs of recovery, this move defies all logic.'' While foreign brokers are nonplussed, the Government argues that the market was over-heating. A Ministry of Finance official said other cooling measures were planned, such as allowing more companies to go public and new share issues. ''As the current steep rise in stock prices is not matched by the pace of economic recovery in the nation, the Government has to step in to stabilise the market,'' said the official. Other government officials, alarmed at a sudden increase in foreign capital, have outlined fears of a rapid increase in stock prices fuelling inflation. Foreign brokers, noting that foreign investment still accounts for only about seven per cent of market capitalisation, dismiss such fears. They also point out that the market surge has been based upon strong fundamentals. ''Companies' profits are rebounding with strong signs of a recovery,'' said Sean Goldrick, managing director of James Capel in Seoul. The enforced correction has forced many analysts to reappraise the Government's attempt to take a more hands-off approach to economic management. ''It shows that the Government can't resist tinkering around.'' said one foreign broker. Analysts are split as to whether the Government could continue to suppress the market artificially. ''I think that the strong fundamentals will make investors stick with Seoul,'' said one. But another said: ''It's much easier to suppress a market than prop it up. The Government here still has the power to control the market.'' The decision to force foreign institutional investors to deposit 20 per cent of buy orders at local banks has especially irked foreign brokers. ''For American and British fund managers it breaches local regulations, as they are not allowed to make such deposits,'' said one. The Government's action has put paid to any hopes of an early lifting of the 10 per cent limit of foreign ownership of South Korean stocks. Although many South Korean companies are regarded as good buys, the investment ceiling has seriously limited opportunities for overseas investors. ''It is unlikely now that there will be any lifting of the ceiling until the end of the year,'' said a broker.