Seoul shares fell 1.6 percent on Wednesday as firms dependent on China such as POSCO fell on concern interest rates in South Korea's top export market will be raised as early as this week to combat higher inflation.
Lenders such as Kookmin Bank also fell a day after Standard and Poor's said core profitability in the sector is under pressure, while Hyundai Merchant Marine slumped 10.7 percent on news regulators are probing a recent surge in its share price for signs of illegal activity.
"The chances of a rate hike in China are quite high. The argument has been that Asian economies such as South Korea are decoupling from the US and focusing towards China, so any impact on economic growth there could have an adverse impact," said Lee Woo-hyun, an analyst at Kyobo Securities. The benchmark Korea Composite Stock Price Index (KOSPI) fell 1.8 percent to 1,813.52 points.
The main index had risen 13.6 percent as of Tuesday since its a three-month intraday low on August 17, making some investors cautious about the pace of gains. However, the KOSPI is still well below a record 2,015.48 points hit on July 26.
Trade volume reached 429.1 million shares worth 5 trillion won compared to 420.5 million shares worth 4.9 trillion won on Tuesday. Decliners trumped gainers by 596 to 203 with 54 titles ending flat.
The September KOSPI 200 futures index dropped 3.3 points to 229.65, while the underlying KOSPI 200 spot index fell 4.7 points to 229.44. The junior and tech-heavy Kosdaq market fell 1.2 percent to finish at 757.83.