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

"Given the investigations by government ministries so far, it is the government's judgement that the incident was not caused by North Korea, although the reason for the accident has not been determined yet," a senior government official was quoted as saying by Yonhap news agency.

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 Defense Ministry sources as saying they were investigating whether it was the result of an explosion on board the vessel.

Presidential Blue House spokeswoman Kim Eun-hye earlier 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 half a century.

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