SEOUL: Seoul shares bounced on Tuesday after recent sharp falls and following firm gains on Wall Street, and as sentiment swung toward hope that European officials would find a way to cut Greece's debt and shore up European banks.
Analysts, however, warned against premature optimism as the situation in Europe was still uncertain and as the global economic outlook remained gloomy.
"Gains we are seeing today are largely a rebound following recent substantial losses, and as earlier investor panic on Europe has eased a bit," said Eom Tae-woong, a market analyst at Bookook Securities.
Euro zone officials are working to magnify the firepower of the region's rescue fund, a senior European Central Bank policymaker said on Monday, while US President Barack Obama piled on pressure for Europe to staunch a sovereign debt crisis that threatens the world economy.
"The market's direction can change any time. I am afraid there are too many uncertainties now for the market to see sustained gains this week," Eom added.
The Korea Composite Stock Price Index (KOSPI) was up 3.5 percent at 1,711.04 points as of 0128 GMT, after hitting a 15-month closing low in the previous session.
Foreign investors were buyers of a net 122.4 billion Korean won ($102.6 million) worth of stocks, poised to snap three consecutive days of selling.
Gains were led by banks and crude oil refiners, helped further by strength in the won currency .
A stronger won lessens the cost of raising foreign-currency denominated debt for banks, and cost of importing crude oil for refiners.
Shares in KB Financial Group jumped 8.3 percent and Shinhan Financial Group spiked 7 percent.
S-Oil , the country's No.3 crude oil refiner, advanced 6.6 percent and SK Innovation rose 7.1 percent.
But defensive issues, which had recently outperformed, lagged.
Shares in Binggrae and ice cream and dairy products manufacturer, fell 1.7 percent and Nong Shim , an instant noodle and snack maker, declined 1.6 percent.
Firm rises in shipyards and transporters gave further support.
Shares in Hyundai Heavy Industries , the world's No.1 shipyard, was up 7.8 percent and Korean Air Line , the country's top air carrier, climbed 5.1 percent.
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