The South Korean stock market is likely to be weighed down by the effects of a U.S. fund manager's decision to gradually exclude Seoul shares from its benchmark index, analysts said Saturday.

The benchmark Korea Composite Stock Price Index (KOSPI) finished at 1,987.85 this week, down 0.44 percent from a week earlier.

The KOSPI, which started this week on the 2,000 level, lost ground, dogged by concerns over U.S. debt ceiling talks and Vanguard Group's move to switch into a benchmark index which excludes Seoul shares.

U.S. fund manager Vanguard Group 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.

As Vanguard plans to gradually switch the benchmark index to the FTSE by June, portfolios will be adjusted to either reduce or eliminate the portion of Korean funds in their basket.

Analysts said that the Korean stock market may continue to be affected by Vanguard's move next week, but the decline may be limited as the global stock market is on the rise amid global credit easing.

Japan's central bank is poised to unveil additional powerful credit easing steps and may raise its inflation target to 2 percent from 1 percent in the coming week, according to market players.

"It would be better for investors to show coolheaded responses to Vanguard's move as the issue is now a given factor," said Lee Seung-woo, an analyst at KDB Daewoo Securities.

On Thursday, the Bank of Korea is scheduled to unveil data on fourth-quarter growth, which analysts say would reach 0.4 percent on-quarter. The central bank's 2013 growth outlook was recently lowered to 2.8 percent from 3.2 percent.(YONHAP)