South Korean shares closed more than two percent lower on Monday, as political uncertainty in regional neighbour Taiwan triggered heavy foreign selling in the local futures market, battering blue chips and banks.
Higher oil prices, a stronger won and renewed fears over bird flu after the government confirmed the first new case for a month also depressed the local market.
The benchmark Korea Composite Stock Price Index (KOSPI) finished 2.22 percent lower at 863.69.
"The market started lower due to weaker US markets on Friday before extending losses as foreigners sold futures to hedge their exposure on the Taiwan news," said Kang Hyun-chul, an analyst at LG Investment & Securities Co.
Taiwan stocks tumbled nearly seven percent on Monday due to political uncertainty after a disputed presidential election.
"We were hit because the Korean and Taiwan stock markets are similar in terms of their foreign exposure and focus on technology shares," Kang said.
Domestic political uncertainty stemming from President Roh Moo-hyun's impeachment on March 12 also dampened foreign appetite for local shares, analysts said.
US light crude closed at a 13-year high on Friday, adding to concerns over South Korea's economic recovery. The world's fourth-biggest oil importer has to import all its crude needs.
After rising for a fifth consecutive session to close at a one-month high on Friday, the won was slightly weaker on Monday.
Most blue chips slipped, with SK Telecom down by 1.62 percent to end at 212,000 won and chip giant Samsung Electronics Co sliding 1.98 percent to close at 544,000 won.
Banking shares also tumbled after a regulator's report on Sunday showed combined net profit at the country's 19 banks plunged by 63 percent in 2003 from a year earlier to 1.86 trillion won.
Top lender Kookmin Bank lost 3.17 percent to close at 45,800 won and the sector's No 2, Shinhan Financial Group, tumbled 4.88 percent to 20,450 won.
Power monopoly Korea Electric Power Corp (KEPCO) shed 3.29 percent to end at 20,600 won after international rating agency Fitch Ratings lowered the outlook on its foreign currency rating to stable from positive.
But Hynix Semiconductor Inc rose three percent to 12,000 won, after the world's third-biggest memory chip maker said it had been in talks with Europe's STMicro electronics on jointly building a plant in China.
Shares in fisheries companies, including Dongwon Industries Co and Daerim Corp, jumped by their daily permissible 15 percent limit as demand for seafood was expected to climb after a new bird flu case was uncovered at a South Korean farm at the weekend.
On the main bourse, trade volume stood at 371.6 million shares valued at 2.04 trillion won. Losers outpaced gainers by 525 to 213, with 70 shares closed flat.
Foreign investors bought a net 42.4 billion won in shares and retail investors bought a net 187.0 billion won. Institutional investors sold a net 187.1 billion won worth of shares.
The June KOSPI 200 futures index fell 3.30 points to 113.50 and the underlying KOSPI 200 spot index declined 2.71 points to 113.31.
The junior Kosdaq closed 1.43 percent down at 429.71.
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