South Korean stocks inched down 0.8 percent Thursday as the currency volatility in the foreign exchange market continued to weigh down on investor sentiment, analysts said. The local currency fell against the U.S. dollar.

The benchmark Korea Composite Stock Price Index (KOSPI) lost 15.93 points to finish at 1,964.48. Trading volume was high at 551.2 million shares worth 4.46 trillion won (US$4.18 billion) with losers far outnumbering winners 518 to 289.

"Shares of local carmakers and technology firms traded lower as the strong won against the Japanese yen dented local exporters,"

Cho Byung-hyun, an analyst at Tongyang Securities Inc., said. "The won-yen volatility will cap KOSPI at the 1,970-2,000 range this month."

"Foreign investors also offloaded local shares due to the currency volatility and Vanguard Group's recent move to switch to a new benchmark index," Cho added.

U.S. fund manager Vanguard Group Inc. had decided to switch the index provider for its funds to the Financial Times Stock Exchange (FTSE) from the Morgan Stanley Capital International (MSCI), effective as of Jan. 10.

Unlike the MSCI, the FTSE does not include South Korea in their benchmark portfolio, which drew concerns among local market analysts that there would be a huge outflow of foreign funds from the local stock market.

Meanwhile, South Korea's economic growth hit a three-year low last year at 2 percent, the central bank said Thursday.

Foreigners offloaded a net 224 billion won worth of local shares, while institutions scooped up a net 67.7 billion won.

Retail investors purchased a net 172 billion won.

Carmakers traded lower following the local currency's sharp rise to the Japanese yen, with Hyundai Motor falling 4.59 percent to 208,000 won, while its smaller affiliate Kia Motors lost 3.51 percent to 52,300 won.

Shares of Donga Pharmaceutical, the country's largest drug manufacturer, fell 4.49 percent to 117,000 won as National Pension Service, the country's largest institutional investor, opposed the company's spin-off plan.

Market behemoth Samsung Electronics moved down 1.36 percent to 1,453,000 won. Its smaller rival LG Electronics shed 2.65 percent to 73,600 won.

State-run Korea Gas fell 3.1 percent to 68,800 won on reports that the company expressed interest in a rights offering.

On the other hand, Kumho Investment Bank moved up by its daily permissible limit to 391 won following media reports that Woori Finance Holdings, the biggest finance group by asset, is considering acquiring the company.

Hanjin Shipping Co., South Korea's leading shipping line, increased 0.78 percent to 12,900 won on the improved earnings outlook following a hike in its freight charges.

The local currency ended at 1,068.7 won against the greenback, down 2.5 won from Wednesday's close, as the International Monetary Fund slashed its outlook on the global economic growth, dealers said. (Yonhap News)