South Korean stocks fell 1.75 percent Friday despite the central bank cutting its key interest rate this week as the weak yen dented investors' sentiment, analysts said.
The local currency fell against the U.S. dollar.
The benchmark Korea Composite Stock Price Index (KOSPI) shed 34.7 points to finish at 1,944.75. Trading volume was low at 277.7 million shares worth 4.1 trillion won (US$3.74 billion) with losers outnumbering gainers 560 to 248.
Analysts said the decline came as the yen-dollar exchange rate breached the 100 mark on Thursday, raising concerns that the weak yen will take its toll on the export-reliant South Korean economy.
A relatively stronger won inflicts foreign exchange losses on local exporters, making South Korean goods more expensive overseas and damaging firms that compete with Japanese firms.
"Despite market watchers earlier predicting the weak yen, the volatility in the foreign exchange market will come as a major drag to the South Korean economy," said Lee Sang-jae, an analyst at Hyundai Securities Co.
Kim Hyung-ryeol, an analyst at Kyobo Securities Co., echoed the view, adding investors consider the foreign exchange conditions more important than key interest rates.
Seoul shares closed bullish in the previous trading session as the central bank slashed the key interest rate for the first time in seven months in a bid to lend support to the government's drive to stimulate the local economy.
In a split decision, Bank of Korea (BOK) Gov. Kim Choong-soo and his six fellow policymakers lowered the benchmark seven-day repo rate by a quarter percentage point to a two-year low of 2.5 percent for May.
Foreign investors offloaded more shares than they purchased at a net 176.5 billion won, and institutions also sold a net 236.2 billion won. In contrast, individuals scooped up more shares than they sold at 412.7 billion won.
Carmakers closed bearish on the weak yen, with No. 1 player Hyundai Motor falling 2.33 percent to 189,000 won and its smaller affiliate Kia Motor losing 3.34 percent to 52,100 won. Top auto parts maker Hyundai Mobis fell 1.92 percent to 255,000 won.
Namyang Dairy Products, a milk powder maker, shed 0.69 percent to 1,004,000 won following reports the company took advantage of its distributors with unlawful acts.
Tech blue chips also lost ground, with market behemoth Samsung Electronics falling 2.57 percent to 1,476,000 won, and its smaller local rival LG Electronics losing 1.07 percent to 83,300 won.
In contrast, mobile carriers closed bullish, with No. 2 player KT climbing 1.04 percent to 38,800 won and LG Uplus, the smallest player, moving up 2.54 percent to 12,100 won. Leading SK Telecom closed flat at 215,000 won.
The local currency ended at 1,106.10 won against the greenback, down 15.10 won from Thursday's close, tracking appreciation of the U.S. dollar against major currencies, dealers said.
Bond prices, which move inversely to yields, closed mixed. The yield on three-year Treasuries remained unchanged at 2.55 percent and the return on the benchmark five-year government bonds moved up 0.02 percentage point to 2.64 percent. (Yonhap News)
