Seoul shares ended lower on Tuesday for the first time in five sessions, as worries the market had overreached amid a record-setting rally pulled Samsung Electronics and Kookmin Bank lower.
Lenders came under further pressure after the country's top financial regulator cautioned that the pace of the sector's earnings growth might slow in the near future.
The main Korea Composite Stock Price Index fell 1.11 percent to close at 1,279.38, retreating from a record high 1,298.83 hit on Monday. "We've gone up very quickly.
Even for somebody who's bullish, there are worries about a tactical or short-term pull-back," Skate Sieve, chief Asia strategist for UBS, said at a news conference on Tuesday.
Foreign and domestic institutional investors were heavy sellers, opting to book profits in Asia's best performing major market this year.
The KOSPI posted record highs in each of the previous four sessions, rising 11.7 percent in November as of Monday's close and nearly 45 percent for the year.
Despite on Tuesday's decline, some analysts were optimistic shares would soon resume their upward trend due to a steady inflow of retail investment funds.
"We have money to buy more shares because retail investment funds are continuing to flow in," said Lee Seeing-moon, a fund manager at Midas Asset Investment.
Sieve at UBS said she remained bullish about domestic stock markets, noting that improving corporate earnings would probably push shares higher into next year.
Lenders were among the leading losers on Tuesday as investors booked profits from a 70 percent surge in the sector this year.
Kookmin Bank, the country's top lender, fell 2.53 percent to 65,600 won, while third-ranked Wooer Financial Group fell 2.6 percent to 18,700 won.
Shinpan Financial Group dropped 3.67 percent to 39,350 won amid worries a government agency would soon sell some of the stake it holds in the lender, creating a share overhang.
Although South Korean banks posted an 85 percent rise in combined net profit for the first nine months of this year, their near-term profit outlook was less rosy, the Financial Supervisory Service said.