South Korean stocks fell 0.18 percent Friday as investors remained cautious ahead of the U.S. Fed's upcoming rate-setting meeting. The local currency rose against the U.S. dollar.

The benchmark Korea Composite Stock Price Index lost 3.45 points to 1,948.62. Trade volume was thin at 375.12 million shares worth 4.08 trillion won ($3.46 billion), with losers outnumbering winners 467 to 343.

"The market did not move much with the absence of major players. Before next week's major events such as the Federal Reserve rate-setting meeting, investors will hold their breath, not taking any significant bets," said Kim Hyung-ryeol from Kyobo Securities Co.

The Fed, set to hold a two-day rate-setting meeting next week, is expected to raise borrowing costs for first time in nearly a decade.

Foreign investors led the downturn by unloading a net 252 billion won worth of local shares. 

Auto and medicine makers were among marked decliners.

No. 1 carmaker Hyundai Motor dropped 1.98 percent to 148,500 won, while second-ranked Kia Motors fell 3.33 percent to 52,200 won. Major drug company Hanmi Pharm plunged 5.31 percent to 660,000 won.

Low oil prices hit major builders, intensifying concerns that a plunge in oil prices will reduce demand for plant construction projects. Hyundai Engineering and Construction retreated 2.21 percent to 28,800 won.

Telecom issues ended bullish. Top mobile carrier SK Telecom gained 2.63 percent to 234,000 won on reports it is considering raising its dividend payout to investors.

The Korean won ended at 1,179.5 won against the greenback, up 1.8 won from Thursday's close.

Bond prices, which move inversely to yields, closed lower. The yield on three-year Treasurys rose 0.3 basis point to 1.748 percent and the return on the benchmark five-year government bonds gained 1.8 basis points to 1.943 percent. (Yonhap)