Seoul shares fell for the first time in three sessions on Wednesday, with brokerages retreating as a rally that started before Christmas lost steam, while petrochemical firms slid on a price-fixing investigation.
Banks such as Kookmin Bank also trimmed gains from news of a foreign capital injection into Merrill Lynch, as investors grew cautious about the pace of the sector's rally, which had been driven by the victory of a business-friendly candidate in last week's presidential election.
But shares in STX Corp, the holding company of STX Group, surged 10.4 percent to 86,000 won following news that its unit, STX Energy, would buy stakes in three oil exploratory wells near Faroe Islands and Ireland from Royal Dutch Shell for an estimated $140 million.
"Worries about global credit markets seem to be easing somewhat after central banks' rate cuts and foreign capital injections into US banks, but it will be still hard for markets to repeat this year's rally in 2008," said Hwang Geum-dan, an analyst at Samsung Securities.
"The health of the US economy and inflation would continue to be key to the markets' direction. I expect Seoul's stock index to rise between 10-20 percent next year, smaller than this year's more than 30 percent."
The Korea Composite Stock Price Index (KOSPI) fell 0.66 percent to 1,906.72 points, giving up part of its 4 percent jump in the past two sessions. Shares in petrochemical companies, including Hanwha Chemical, slid after South Korea's antitrust watchdog fined seven petrochemical firms for colluding to fix prices of products and planned to report three of the firms to prosecutors.
Hanwha Petrochemical dropped 2.83 percent to 18,900 won, while SK Energy fell 2.99 percent to 178,500 won. LG Chem lost 1.82 percent to 91,900 won.
Brokerages also fell as the strong rally in the past sessions faltered, with Samsung Securities Co shedding 0.78 percent to 88,800 won and Hyundai Securities Co falling 2.27 percent to 21,500 won.
Financials also gave up early gains made after Merrill Lynch & Co Inc, hit by huge subprime mortgage losses, said it would increase its capital with an investment from Singapore's Temasek Holdings and Davis Selected Advisers.
Top lender Kookmin Bank fell 0.83 percent to 72,000 won and second-ranked Shinhan Financial Group eased 0.72 percent to 55,300 won. The sector had outperformed the market on growing expectations that a pro-market government under president-elect Lee Myung-bak would scrap a rule prohibiting conglomerates from owning domestic banks and deregulate the financial sector.
Woori Financial Group fell 2.77 percent to 19,300 won after the Wall Street Journal reported the South Korean government plans to sell a 7 percent stake in Woori to local and foreign institutions through block trades in January. Foreign investors sold a net 13.3 billion won ($14.17 million) worth of shares by 0610 GMT and retail investors offloaded a net 115 billion won.
But local institutions bought a net 155 billion won. Trade volume stood at 250 million shares valued at 3.7 trillion won, compared with 316 million shares worth 5.2 trillion won on Monday. Decliners led advancers by 414 to 371, with 86 titles flat. The March KOSPI 200 futures index shed 0.25 point to 244.35 and the underlying KOSPI 200 spot index declined 1.66 points to 243.48. The junior Kosdaq market fell 0.96 percent to 692.02.