South Korean stocks closed 0.49 percent higher Wednesday on the back of the government's envisioned measures to boost its economy, analysts said. The local currency fell against the U.S. dollar.

The benchmark Korea Composite Stock Price Index (KOSPI) advanced 9.74 points to 1993.44. Trading volume was moderate at 339 million shares worth 3.76 trillion won (US$3.39 billion), with decliners outnumbering gainers 406 to 296.

"The stock market gathered ground as investors' sentiment got a boost from the government's envisioned extra budget plan," said Lee Sang-jae, a researcher at Hyundai Securities Co. "The eased concerns over Cyprus also added to the overall gain."

South Korea is seeking to draw up an extra budget worth about 10 trillion won as the export-reliant economy was hit hard by the protracted global economic slowdown. 

The country has not put forth an extra budget since 2009 when it crafted 28.4 trillion won worth of additional spending in a bid to tide over the global financial crisis. The South Korean economy expanded 2 percent last year, the slowest gain in three years.

Cyprus was reported to have reached a final deal on Monday to receive a bailout worth 10 billion euros (US$12.9 billion) to prevent its banking system from defaulting, which eased concerns over the eurozone.

Foreigners offloaded a net 214 billion won worth of local shares, and retail investors sold a net 155.1 billion won. In contrast, institutions scooped up a net 368 billion won.

Carmakers closed higher on the improved outlook on the foreign exchange market, with No. 1 player Hyundai Motor rising 1.59 percent to 224,000 won, and top auto parts maker Hyundai Mobis adding 1.97 percent to 311,000 won.

Leading shipbuilder Hyundai Heavy Industries advanced 0.71 percent to 214,000 won as the firm said Tuesday that it has secured a $2 billion deal to build two offshore facilities for France-based Total SA.

Leading oil refiner SK Innovation Co. increased 2.5 percent to 164,000 won on the improved outlook on the industry.

Defense shares also gathered ground on rising tension with North Korea, with Huneed Technologies increasing 1.62 percent to

3,775 won and Firstec adding 2.78 percent to 2,220 won.

In contrast, tech shares closed lower, with market behemoth Samsung Electronics falling 0.33 percent to 1,504,000 won and its smaller rival LG Electronics losing 0.48 percent to 82,400 won.

Mobile carriers also lost ground, with No. 2 player KT falling

0.56 percent to 35,200 won, and LG Uplus losing 1.37 percent to 7,920 won.

The local currency ended at 1,111.60 won to the U.S. dollar, down 5.90 won from Tuesday's close, due to the rising tension with North Korea, dealers said.

Bond prices, which move inversely to yields, closed mixed. The yield on three-year Treasuries ended unchanged at 2.58 percent and the return on the benchmark five-year government bonds shed 0.01 percentage point to 2.65 percent. (Yonhap News)