Seoul shares fell for a third session in a row on Wednesday, losing 0.2 percent, amid concern that higher oil prices will fan inflation in the key US market and hurt profits at firms such as Samsung Electronics.
LG.Philips LCD Co Ltd also fell, despite reporting a swing to a quarterly profit on Tuesday, after the flat panel maker cautioned margins may drop in the April-June quarter due to a slide in panel prices.
Foreign investors were net sellers for a third session, having sold a net 179 billion won ($187.6 million), according to data at 0630 GMT.
But broader losses were capped as investors focused on stocks viewed as oversold, while steel maker POSCO Co Ltd gained despite mixed views about its latest earnings, amid expectations for stock buybacks to ward off potential take-over attempts.
The benchmark Korea Composite Stock Price Index (KOSPI) fell 0.18 percent to end at 1,383.59, after earlier falling as much as 1 percent.
US stocks fell on Tuesday for a third day, after rising oil and commodity prices created worries that the Federal Reserve would continue raising interest rates, potentially hitting US consumer demand further.
"We are approaching summer time when demand for gasoline is high, especially in the US It's not a good time to see crude prices going to historic highs," said Thomas Choi, head of research at PCA Asset Management.
"If we start seeing oil at historic highs it would be very negative for Korea because of its high dependency on oil and would send a shock to the global markets," he added. "I'm keeping my fingers crossed."
US crude futures rose 24 cents to settle at $68.98 a barrel overnight, after earlier gaining as much as $69.45, the highest for a front contract since September 2, amid worries over crude supply threats in Nigeria and Iran. Oil was at $69.12 in Asia, not too far from the record $70.85 a NYMEX front month crude contract hit on August 30.
State-run power provider Korea Electric Power Corp, which faces higher fuel costs when oil prices rise, fell 1.04 percent to 42,650 won. Samsung Electronics Co Ltd fell 0.94 percent to 630,000 won, with investors also cautious ahead of its first-quarter earnings results due out on Friday.
LG.Philips LCD Co Ltd fell 0.61 percent to 40,800 won, with some analysts, including Lehman Brothers, now expecting an operating loss in the current quarter. However, POSCO rose 2.3 percent to 245,000 won. The world's fifth-biggest steel maker reported on Tuesday quarterly profit almost halved on lower steel prices, although analysts were divided about its outlook.
Investors were also attracted to stocks considered oversold, with Hynix Semiconductor Inc rebounding from two days of falls to gain 2.36 percent to 30,400 won.
Citigroup cut its 2006 operating profit forecast for Hynix by 10 percent, but said it expected earnings to turn around by the third quarter, recommending investors buy Hynix shares.
Trade volume reached 293 million shares worth 3 trillion won, data at 0630 GMT showed, compared to 314.8 million shares worth 4.2 trillion won on Tuesday. Decliners edged out gainers by 376 to 361 with 87 titles ending flat.
Retail investors bought a net 90.2 billion won, while institutional investors bought a net 84.4 billion won.
The June KOSPI 200 futures index fell 0.75 point to 179.20, while the underlying KOSPI 200 spot index lost 0.48 point to 179.13.
South Korea's junior and tech heavy Kosdaq market fell 0.20 percent to finish at 690.60.
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