The benchmark Korea Composite Stock Price Index dropped 3.03 points, or 0.13 percent, to 2,326.62. Trade volume was moderate at 317 million shares worth 4.81 trillion won ($4.25 billion), with losers outnumbering gainers at 569 to 239.
On Monday, the main bourse sank more than 1 percent as retail investors dumped local shares after North Korea claimed a day earlier that it successfully tested a hydrogen bomb that can be mounted on an intercontinental ballistic missile.
While the main bourse continued to lose ground on Tuesday, analysts said the downward pressure was limited as institutions scooped up underappreciated shares.
"Based on past examples, foreigners and institutions tend to consider the North Korean risk an opportunity to purchase bargain shares," said Byun Joon-ho, a researcher from Hyundai Motor Investment & Securities Co.
Institutions scooped up a net 242 billion won, while individual investors offloaded a net 65.5 billion won. Foreigners sold more shares than they bought at 213 billion won.
Tech shares closed bullish, with Samsung Electronics moving up 1.56 percent to 2,338,000 won. Leading chipmaker SK hynix shot up 2.64 percent to 69,900 won. LG Electronics also jumped a whopping 4.59 percent to 86,500 won.
Carmakers closed mixed, with Hyundai Motor backtracking 1.43 percent to 138,000 won while its auto parts arm Hyundai Mobis closed unchanged at 238,500 won. Kia Motors, the country's second largest automaker shed 2.29 percent to 34,100 won.
No. 1 steelmaker POSCO shed 0.72 percent to 342,500 won, while Korea Zinc climbed 1.37 percent to 517,000 won. Hyundai Steel moved down 1.55 percent to 57,000 won.
The local currency closed at 1,131.10 won against the US dollar, up 1.90 won from the previous session's close.
Bond prices, which move inversely to yields, ended higher. The yield on three-year Treasurys shed 0.2 basis point at 1.780 percent and the return on the benchmark five-year government bonds also lost 0.5 basis point to 1.996 percent. (Yonhap)