South Korean stocks closed marginally higher Thursday, paring earlier gains as renewed fear over a weaker yen overshadowed the momentum spurred by the U.S.

Federal Reserve's plan to cut stimulus, analysts said. The local currency fell sharply against the U.S. dollar.

The benchmark Korea Composite Stock Price Index (KOSPI) added 1.02 points, or 0.05 percent, to finish at 1,975.65. Trading volume was light at 251.6 million shares worth 3.77 trillion won ($3.56 billion) with decliners outnumbering gainers 439 to 359.

"The (U.S.) tapering is certainly a good sign for us. But we need to be mindful of the fact that Japan has also been releasing huge amounts of liquidity into the market, further weakening its currency, which works against us," said Bae Sung-young, an analyst at Hyundai Securities Co.

The main index started off bullish at the opening bell, rising more than 1 percent as investors increased bets after prolonged anxiety over the U.S. monetary policy turned into relief following the Fed's announcement that it will scale back its bond purchases by $10 billion to $75 billion a month from January next year.

But it erased most of the gains in choppy trading toward the later session, as the fear of yen's depreciation prompted a steep fall in shares of automakers, the industry prone to adverse impact from the weak yen.

Hyundai Motor dipped 3.08 percent to 220,500 won, with its smaller affiliate Kia Motors sliding 1.83 percent to 53,500 won.

The Japanese currency lost ground against the greenback following the Fed's decision, surpassing the 104 yen mark earlier before it rebounded to around 103 yen as of 3:30 p.m. (Seoul time).

Foreign investors opted to scoop up local shares with a net 76.3 billion won, with institutions also buying a net 112.3 billion won.

The local currency ended at 1,061.10 won against the greenback, down 8.8 won from Wednesday's close, pressured by the ascent of the dollar following the Fed's taper decision, dealers said. (Yonhap News)