SEOUL: Seoul shares fell on Wednesday, giving up earlier gains of more than 1 percent, hit by losses in financials including KB Financial Group and on growing fears about France amid speculation of a possible sovereign ratings downgrade.
"The market is reacting very sensitively to talk relating Europe. Rumours that France may face a ratings downgrade chilled investor sentiment," said Lee Jin-woo, a market analyst at Mirae Asset Securities.
"French banks are substantially exposed to Italy due to their large Italian treasury bond holdings," said Kim Hyoung-ryoul, a market analyst at NH Investment & Securities.
France become the latest euro zone member to come under pressure after a spike in its borrowing costs on jittery bond markets fuelled concerns that the euro zone's second biggest economy was also being sucked into the spiralling debt crisis.
Institutions were sellers of a net 79.6 billion won ($70.7 million) worth of stocks, offloading shares for a second straight session.
The Korea Composite Stock Price Index (KOSPI) ended down 1.59 percent at 1,856.07 points, after rising to as high as 1,911.33 points.
Financials led falls, with Hana Financial Group shedding 3.7 percent and Woori Finance Holdings down 3.1 percent.
Brokerages Samsung Securities and Mirae Asset Securities fell 2.6 percent and 1 percent respectively.
Korea Electric Power Corp outperformed, edging down 0.4 percent after the state utility posted an operating profit of 1.5 trillion won, swinging from the previous quarter's 803.6 billion won loss.
Defensive issues also outshone as preference for safer assets grew.
Shares in CJ Corp, a food conglomerate, rose 2.8 percent and KT&G, a tobacco and ginseng manufacturer, advanced 3.4 percent.
Hynix Semiconductor rose 1.4 percent, lifted after news Amazon.com Inc's Kindle Fire tablet uses components from the firm.
Ratings agency Moody's placing the world's No.2 memory chip maker on review for an upgrade gave the stock further help.
Shares in beer and spirits maker Hite Jinro climbed 2 percent after local media reports domestic breweries were planning price increases.
Lotte Midopa spiked 7.6 percent amid market speculation it may be merged with Lotte Shopping, though a Lotte Group spokesman dismissed the talk as "unlikely."
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