South Korean stocks closed 0.49 percent higher on Tuesday as investors remained cautious over the impact of Japan's monetary easing to stimulate the economy, analysts said. The local currency edged up against the U.S. dollar.

The benchmark Korea Composite Stock Price Index (KOSPI) gained 9.66 points to finish at 1,996.52. Trading volume was moderate at 547.9 million shares worth 4.2 trillion won (US$3.95 billion) with gainers slightly outnumbering decliners 404 to 399.

"Investors are now less worried about the outflow of Vanguard funds and they know it will have a limited impact on the South Korean stock market," said Lee Seung-woo, an analyst at Daewoo Securities Co. "They were also buoyed by a strong government will to curb the won's steep rise through intervention."

Vanguard Group earlier switched the index provider for its funds from the Morgan Stanley Capital International (MSCI) to the Financial Times Stock Exchange (FTSE), which excludes Seoul shares.

"There is no bad news to drag down the index to a large extent," said the analyst. "But negotiations on extending the U.S. debt limit in Washington can be a time bomb later this month or next month."

Earlier in the day, the Japanese central bank doubled its inflation target to 2 percent and eased monetary policy further in order to boost the economy, fueling the yen's downward trend.

Foreigners dumped a net 214.5 billion won worth of local shares for a second session in a row, while institutions bought 230.2 billion won.

Market bellwether Samsung Electronics gained 1.79 percent to 1,480,000 won and LG Display jumped 2.81 percent to 29,300 won on speculations that panel prices will rebound within the first quarter.

Carmakers made a turnaround after a weeks-long decline, with industry leader Hyundai Motor adding 1.9 percent to 214,500 won and its smaller affiliate Kia Motors rising 1.69 percent to 54,300 won.

Construction shares ended bearish, with top builder Hyundai Engineering & Construction dropping 1.27 percent to 69,900 won and GS Engineering & Construction shedding 0.72 percent to 55,300 won.

The local currency ended at 1,062.3 won against the greenback, up 0.6 won from Monday's close, after Japan's additional monetary easing, dealers said. (Yonhap News)