South Korean shares closed just over one percent lower on Friday, as the worsening security situation in Iraq unnerved investors and sent large-cap stocks such as Samsung Electronics Co Ltd sharply lower.
The market, which had rallied to its highest close in almost two years a day, also lost momentum as investors took to the sidelines ahead of a holiday in the United States on Friday.
The benchmark Korea Composite Stock Price Index (KOSPI) ended down 1.25 percent at 905.44 points, snapping six consecutive gaining sessions and trimming gains for the week to 2.5 percent.
"As the bad news about Iraq emerged just as the market moved above 910 points, investors began to doubt whether there was room for further gains, which prompted some profit-taking," said Lee Juan, a fund manager at Daehan Investment Trust Management Co.
Seven South Koreans were seized in Iraq on Thursday before being released unharmed later in the day, Seoul's Foreign Ministry said.
But an Iraqi group, which vowed to kill them if Japanese troops did not leave Iraq, was still holding three Japanese civilians.
The KOSPI's 20-day relative strength index (RSI) stood at 72.8 points on Thursday, indicating shares were overbought, while the sub-index for large-cap stocks ended 1.47 percent lower.
Leading the decline, shares in Samsung Electronics, the world's biggest maker of memory chips, slid 1.65 percent to 595,000 won after closing at a record high of 605,000 won on Thursday.
Display maker Samsung SDI dropped 3.2 percent to close at 166,500 won and the country's top auto-maker, Hyundai Motor Co, slipped 2.34 percent to 54,200 won.
Many analysts said the current wave of violence in Iraq was unlikely to affect the current solid market fundamentals, but weakness in key foreign markets and potential increases in oil prices were a risk.
Steel maker POSCO was the sole top-10 stock on the main bourse to end higher, gaining 0.85 percent to close at 177,000 won, as investors bet on fatter first-quarter earnings due on Monday thanks to strong steel prices and brisk demand from China.
Foreign investors bought a net 116.7 billion won worth of local shares, bringing their total purchases for the year to a net 10.2 trillion won.
Retail investors turned net buyers for the first time in 11 days as the market entered a correction, buying a net 98.4 billion won worth of shares.
But local institutions sold a net 160 billion won in shares. Trade volume stood at 343.8 million shares valued at 2.0 trillion won. Losers topped gainers 459 to 268 with 78 stocks unchanged.
The June KOSPI 200 futures index was down 1.60 points at 119.60 and the underlying KOSPI 200 spot index fell 1.77 points to 119.27.
The junior Kosdaq ended down 0.57 percent at 457.92.