South Korean stocks dropped 1.11 percent on Friday after the European Central Bank (ECB) failed to meet market expectations it would buy bonds issued by Spain and Italy, analysts said. The local currency fell against the U.S. dollar.

The benchmark Korea Composite Stock Price Index (KOSPI) lost 20.72 points to 1,848.68. Trading volume was light at 254.6 million shares worth 3.6 trillion won ($3.2 billion), with losers outnumbering gainers 503 to 306.

"After ECB president Mario Draghi pledged to do whatever to save the euro last week, the market had focused on ECB's buying of soaring Spanish and Italian bonds," said Lim Dong-rak, an analyst from Hanyang Securities Co.

"But last night he came with no immediate or concrete measures, no bond purchase. Investors were disappointed with his announcement."

Markets rallied from late this week on hopes of stimulus from the ECB and the U.S. Federal Reserve, with the KOSPI gaining for four straight sessions to shoot up nearly 100 point. However, both central banks' lack of action cooled down markets throughout the world.

"Nevertheless, investors are still somewhat optimistic about the ECB's intervention as Draghi promised to take action in the near future, maybe one or two weeks later," Lim said.

Foreigners turned to net sellers offloading a net 67.3 billion won worth of local shares, ending a five-session buying streak.

Stocks went south across the board, with techs, banks and autos remaining bearish.

Tech behemoth Samsung Electronics lost 1.58 percent to 1,243,000 won, while LG Electronics, the world's fifth-largest mobile phone maker, soared 5.19 percent to 64,900 won on reports its share of the U.S. smartphone market bounced back in the second quarter.

Brokerages were among the biggest losers following lower-than-expected second-quarter earnings and the renewed eurozone debt crisis. Woori Finance Holdings, the biggest financial group by assets, declined 1.87 percent to 10,500 won and No. 3 player Hana Financial Group tumbled 4.29 percent to 33,450 won.

Carmakers also finished weak, with market leader Hyundai Motor retreating 2.31 percent to 233,000 won and its smaller affiliate

Kia Motors falling 2.96 percent to 75,500 won.

The local currency closed at 1,134.8 won against the greenback, down 3.1 won from Thursday's close, as foreigners fled to safe-haven assets, dealers said.

(Yonhap News)