South Korean stocks closed 0.34 percent lower on Friday as investor sentiment was dampened by the downgrade of Japan's credit rating by Standard & Poor's, analysts said. The local currency rose against the U.S. dollar.
The benchmark Korea Composite Stock Price Index (KOSPI) declined 7.14 points to 2,107.87, snapping a four-day run of gains.
Trading volume was moderate at 347.8 million shares worth 7.71 trillion won (US$6.92 billion) with losers outnumbering gainers 519 to 347.
"Automakers' sharp losses led the market's falls as sentiment remained fragile following Standard & Poor's decision to cut Japan's sovereign debt rating," said Bae Sung-young, a market analyst at Hyundai Securities Co.
"Concerns that the yen's weakness will likely dent Korean automakers helped send shares of local car makers lower, but the impact of Japan's credit rating cut would be short-lived."
Global credit appraiser Standard & Poor's on Thursday downgraded Japan's sovereign credit rating by one notch to AA minus from AA, the first cut in nine years, citing the country's worsening fiscal soundness.
Moody's Investors Service, meanwhile, warned against the possibility of placing a negative outlook for the U.S. credit rating due to its ballooning budget deficit.
Car makers sharply lost ground as the yen's weakness, sparked by Japan's credit rating cut, is feared to crimp price competitiveness for Korean automakers. Top automaker Hyundai Motor fell 4.08 percent to 188,000 won, and its affiliate Kia Motors declined 3.05 percent to 57,300 won.
Shipbuilders also finished in negative territory. Industry leader Hyundai Heavy & Industries fell 0.6 percent to 498,000 won, and its affiliate Hyundai Mipo Dockyard lost 3.17 percent to 214,000 won.
But market leader Samsung Electronics rose 1.61 percent to hit a fresh record high of 1,010,000 won on expectations that its operating profits will be on the upward trend after bottoming out in the fourth quarter. Chip giant Hynix Semiconductor advanced 5.36 percent to 29,500 won on its upbeat business outlook.
After undergoing volatile trading, the local currency ended at 1,113.80 won to the dollar, up 0.6 won from Thursday's close, as exporters unloaded the greenback, dealers said.
Bond prices, which move inversely to yields, closed lower. The yield on three-year Treasuries rose 0.02 percentage point to 3.88 percent and the return on the benchmark five-year government bonds added 0.02 percentage point to 4.38 percent.