ASSOCIATED PRESS & SOURCES

RESCUERS BATTLING BIG WAVES and strong winds have pulled nearly 250 people from the sea after the sinking of the Rabaul Queen. More than 110 people remain missing.

Crews in ships, planes and helicopters continued to scour the warm seas. PNG's National Maritime Safety Authority rescue coordinator, Capt Nurur Rahman, said he had not given up hope of finding more survivors, though the swell and winds were rising and some victims may have been trapped inside the sunken ferry.

"I do not presume them to be dead yet," he told the ABC.

Owners of MV Rabaul Queen, the Rabaul Shipping Company, said there had been 350 passengers and 12 crew aboard the 22-year-old Japanese-built ferry when it went down yesterday morning while travelling from Kimbe to Lae. A police official said most of those aboard were students.

"We are stunned and utterly devastated by what has happened," managing director Peter Sharp said in a statement.

The company said the cause of the disaster remained unclear, but National Weather Service chief Sam Maiha told the Post-Courier that shipping agencies had been warned to keep ships moored this week because of strong winds.

An official at the scene told the newspaper that the ferry capsized in rough seas and sank four hours later.

Capt Rahman said the sea temperature was above 20 degrees - warm enough for people to survive for an extended period.

"Because of the proximity of the shore, I still have high hopes to have many more survivors," he said.

He said the ferry sank in one-kilometer deep water, making it difficult to determine whether bodies were trapped inside.

The survivors were delivered to Lae.

"None of them had sustained any real injuries. They were pretty cold and miserable," Lae Chamber of Commerce president Alan McLay told Sky News television.

The company said the ferry's captain had made routine radio contact with another vessel before sinking and gave no indication anything was wrong.

Prime minister Peter O'Neill said the cause of the accident was unknown, but acknowledged that safety in the shipping industry was lax.

"We need to bring some safety measures back into this industry," O'Neill told reporters.