Seoul's main index breached the 1,300 point barrier for the first time in its 22-year history on Wednesday, fanned by firmer domestic demand-focused stocks such as Kookmin Bank due to an improving economic outlook.
Positive service sector data and a report from the Organisation underpinned gains for Economic Co-operation and Development forecasting South Korea's economic growth would begin to accelerate from next year.
The benchmark Korea Composite Stock Price Index (KOSPI) hit 1,300.88 at one point, it's highest since its launch in 1983.
The index ended up 1.41 percent at 1,297.44. "Recent economic data has steadily shown that next year will be better than this year, and this has lifted market expectations," said Chang In-wham, chief executive and fund manager at KTB Asset Management.
Fund managers reported strong inflows of end-month cash from stock savings accounts held by retail investors, which have been a key factor behind the Kosei's nearly 45 percent surge this year, the biggest among major regional markets.
The main index has gained 12 percent in November alone and set record highs in 10 of the past 14 sessions. "When you see the heavy monthly inflow from these types of funds, it makes you confident local funds will continue to come in," said Kim Young-min, an equity strategist at Korea Investment Trust Management.
Institutional investors bought a net 294.5 billion won worth on Wednesday, bringing their total for the month to a net 1.5 trillion won.
Top local lender Kookmin Bank rose 3.66 percent to 68,000 won after data showed output in the service sector rebounded in October after the first fall in five months in September.
Other domestic demand-led stocks rose, with Chinese, the country's third-biggest department store operator, ending up 1.79 percent at 427,500 won.
Brokerages advanced as bullish equity markets raised the prospects of an earnings windfall. Wooer Investment and Securities Co rose 7.37 percent to 21,850 won, after hitting 22,650 won, its highest since 2002.
Confidence in the economic outlook was further boosted after the OECD said on Tuesday a recovery in private consumption and a pick-up in exports should boost local economic growth to around 5.0 percent in 2006 and 2007 from 4.0 percent seen in 2005.
Exporters rose on upbeat US home sales and factory orders data. Home appliance maker LG Electronics Inc added 2.75 percent to 78,600 won, with expectations of a recovery in mobile phone operating margins in the current quarter also helping the stock.
Meanwhile, top local carrier Korean Air Co rose 3.98 percent to 27,450 won, after hitting a record 28,200 won, boosted by lower oil prices. US crude futures settled down 86 cents at $56.50 per barrel overnight due to mild weather, with oil falling to $56.27 in Asia.
South Korea's junior Kosdaq market rose 2.2 percent to 712.39, its highest close since ending at 715.5 on June 14, 2002. The Kosdaq has gained in 22 of the 23 past sessions.
On the down side, Kia Motors Corp fell 3.89 percent to 24,700 won as investors locked in sharp gains seen this year. Kia's share price has more than doubled this year.