South Korea's president ordered an investigation on Saturday into how a navy ship sank near the disputed North Korea border but officials said it was unlikely to have been the result of any Pyongyang involvement.

Initial speculation that North Korea might have sunk the ship spooked Wall Street, where share prices dipped overnight partly on geopolitical concerns, and the won dropped against the dollar.

"Every possibility should be considered in investigating causes of the ship sinking and the investigation must be fast and thorough," President Lee Myung-bak's office quoted him as telling an emergency government meeting early on Saturday.

A Reuters reporter on Baengnyeongdo island near where the ship sank said about 10 navy and coastguard vessels, along with divers, were searching the area and the wreckage.

MBC television quoted defence ministry sources as saying it was unlikely the prickly North was involved, although they were checking for a possible link. The ministry was also investigating whether it was the result of an internal explosion.

Presidential Blue House spokeswoman Kim Eun-hye also said there had been no unusual movements by North Korea, which has a million-strong military, much of it near the heavily armed border that has divided the Korean peninsula for more than 50 years.

Local media quoted a presidential official as saying satellite pictures and other information showed no sign of the North Korean military in the area at the time of the sinking.

The defence ministry said 58 of the 104 on board had been rescued and Yonhap quoted navy officials as saying several had died. It was later quoted as saying 46 crew were still missing.

"An unidentified reason caused a hole in the ship, which led to its sinking. Currently 58 have been rescued out of the total 104 on board. Rescue efforts are under way," the ministry said.

"The ship fired a warning shot at an unidentified object, and the object was later suspected to have been a flock of birds. But we are checking," it said.

Loud firing

Earlier, South Korean media had quoted officials as saying the North could have torpedoed the ship. One said it could have struck a mine.

"The loud firing sound remained for about 15 minutes, while I watched TV. I never heard such loud firing sound in my entire life staying at (the) island, and the sound was definitely different from those heard from usual drills," Yonhap news agency quoted one 56-year-old resident on a nearby island as saying.

MBC TV said it could take up to 20 days to raise the 1,200-tonne ship. It sank in waters 15-20 metres deep.

The sinking coincides with mounting pressure on Pyongyang to end a more than one-year boycott of international talks to end its efforts to build a nuclear arsenal.

Reports of a possible naval clash saw the won weaken roughly 0.45 percent against the dollar and were cited by analysts as one reason for a dip in U.S. stocks.

Markets have become largely inured to sabre-rattling by North Korea but it has in the past caused brief jitters that were quickly reversed.

The ship sank near the disputed Yellow Sea border off the west coast of the peninsula which was the scene of two deadly naval fights between the rival Koreas in the past decade.

Navies from the rival Koreas exchanged gunfire for the first time in seven years in the Yellow Sea in November, damaging vessels on both sides.

Reuters