South Korean stocks retreated 0.72 percent Wednesday as investors took to the sidelines ahead of the European Central Bank's two-day policy meeting to decide on expanding its stimulus step. The local currency fell against the U.S. dollar.

The benchmark Korea Composite Stock Price Index dropped 14.64 points, or 0.72 percent, to 2,009.29. Trade volume was moderate at 623.96 million shares worth 4.3 trillion won ($3.69 billion), with losers far outpacing gainers 532 to 286.

Investors expect the ECB to expand its stimulus program when policymakers meet on Thursday, a move that could drive the U.S. dollar higher against major currencies. ECB head Mario Draghi has signaled a rate cut to support the eurozone's economic growth and drive inflation higher.

"KOSPI turned bearish after a brief rally in the previous session as investors expected a strong greenback ahead of the ECB's policy meeting, which also weighed down on other emerging markets," said Kwak Hyun-soo, an analyst at Shinhan Investment Corp.

Foreign investors offloaded a net 319.14 billion won worth of local stocks, while retail investor and institutions bought a net 118.04 billion and 14.24 billion won, respectively.

Most large caps remained in negative terrain.

Market kingpin Samsung Electronics fell 1.59 percent to 1,300,000 won, and top automaker Hyundai Motor edged down 0.65 percent to 152,000 won.

Cosmetic shares bucked the trend as the ratification of the free trade agreement with China boosted hope for business expansion in the fast-rising beauty market.

AmorePacific, the nation's leading cosmetic maker, gained 1.79 percent to 426,000 won, and LG Household & Health Care increased 0.88 percent to 1,037,000 won.

The local currency ended at 1,164.3 won against the greenback, down 6.3 won from Tuesday's close.

Bond prices, which move inversely to yields, closed higher. The yield on three-year Treasurys fell 1 basis point to 1.762 percent and the return on the benchmark five-year government bonds lost 0.9 basis point to 1.977 percent. (Yonhap)