South Korean stocks snapped a six-day losing streak to end nearly 1 percent higher on Tuesday, with the local currency also gaining ground versus the U.S. dollar, as the two Koreas reached a dramatic deal to end tensions on the peninsula, analysts said.

After starting lower at the opening bell, the benchmark Korea Composite Stock Price Index closed up 16.82 points, or 0.92 percent to 1,846.63. Trading volume was moderate at 444.8 million shares worth 6.6 trillion won ($5.4 billion) with advancers far outpacing decliners 691 to 145.

The KOSPI dipped to a two-year low on Monday, reeling from China's stock market rout and a dip in Wall Street.

"Having eased the North Korean risk worked as one positive factor for the local market," said Bae Sung-young, an analyst at Hyundai Securities Co.

Earlier in the day, North and South Korea reached an agreement on defusing heightened tensions in a dramatic breakthrough after days of intensive high-level talks.

The North expressed regret over its landmine attack, which led to an exchange of artillery shelling between the two sides last week, and promised to make efforts toward ending provocations.

But the Tuesday gains are part of a technical rebound as a result of bargain hunting after days of losses, Bae noted, adding that the Seoul market is still prone to further face volatility for the time being.

"So long as deepening worries about China's slowdown and uncertainties surrounding a possible delay of a rate cut by the U.S. Federal Reserve persist, the market will have to face volatile sessions in the coming days," he said.

Foreigners continued to offload local stocks by dumping a net 528.7 billion won, extending its selling binge for a 14th consecutive day. Individuals and institutions bought a combined 517 billion won. 

Market heavyweights closed mixed. Top-cap Samsung Electronics finished flat at 1,079,000 won, while SK Telecom, the country's top mobile carrier, sank 3.64 percent to 238,500 won.

Hyundai Merchant Marine, the biggest shareholder of Hyundai Asan, which operates tour services to North Korea's Mt. Kumkang, surged 7.83 percent after Seoul and Pyongyang reached a last-minute agreement to defuse military tensions.

SK hynix, the chip-making unit of South Korea's No. 3 conglomerate SK Group, spiked 7.89 percent to 33,500 won, cheered up by the company announcement to spend 46 trillion won building three new chip plants.

The Korean won also rebounded from its five-year low against the U.S. dollar on eased inter-Korean tensions and high expectations of a delay in a much-expected U.S. rate hike.

The local currency closed at 1,195.30 won to the greenback, up 3.7 won from the previous session's close. (Yonhap)