Seoul shares retreated on Tuesday from three-week highs as Kookmin Bank fell amid worries HSBC's move to purchase a controlling stake in rival Korea Exchange Bank (KEB) would increase competition in the sector.
Concerns that some of the outperformers during the market's recent surge appeared technically overbought also hit stocks such as steel maker POSCO and shipbuilder Hyundai Heavy Industries Co. As of Monday the KOSPI had gained 15.7 percent since hitting a three-month intraday low on August 17, in a steady recovery from a market slump a month ago when investors fretted about the fallout from the US subprime mortgage sector.
But KEB rose - though ending off the day's earlier highs - on expectations the UK-based lender's acquisition of a 51 percent stake would make South Korean bank a stronger contender in a cut-throat domestic sector.
"There's been factors such as the KEB M&A news that have helped drive shares. But the most important thing today is that the market has struggled to break above the 1,900-point level, indicating there's still plenty of hesitation left," said Chung Kyun-sik, chief investment officer at Eastar Investment Advisors.
The benchmark Korea Composite Stock Price Index (KOSPI) fell 0.38 percent to end at 1,874.74 after earlier hitting its highest intraday level since August 9, the last time the main index was above the 1,900-point level.
Trading was focused on financials after HSBC Holdings Plc said late on Monday it has agreed to buy 51 percent of KEB, South Korea's fifth-biggest commercial lender, from private equity firm Lone Star for $6.3 billion.
The news was viewed as a disappointment for Kookmin Bank, whose deal to buy KEB last year for $7.3 billion was scuttled after Lone Star pulled out, citing regulatory issues. Shares in South Korea's top lender fell 0.1 percent to 76,300 won. But KEB rose 1.7 percent to 14,850 won, after earlier gaining as much as 8.2 percent, as HSBC's move was seen bolstering its competitiveness in the sector.
Shares in recent outperformers fell amid worries about their technical levels. Steel maker POSCO retreated 2 percent to 580,000 won after earlier in the session hitting a record 605,000 won.
POSCO's relative strength index had ended on Monday at 77.3, above the 70-point level at which a stock is generally seen as technically overbought. Trade volume reached 420.9 million shares worth 5.5 trillion won compared to 385.7 million shares worth 5 trillion won on Monday. Decliners outnumbered gainers by 470 to 323 with 65 titles ending flat.
The September KOSPI 200 futures index fell 1.40 points to 237.90, while the underlying KOSPI 200 spot index lost 0.81 point to 237.91. The junior and tech-heavy Kosdaq market fell 0.40 percent to finish at 775.76.