The Korea Composite Stock Price Index (KOSPI) closed down 2.9 percent at 1,861.54 points, after retreating as much as 3.1 percent, its biggest percentage loss since May, 2012. Foreign investors were net sellers, offloading a net 174.5 billion won ($145.14 million) worth of shares, preliminary data showed.
The South Korean won erased early gains and fell against the dollar as foreign investors sold local equities, while importers purchased dollars on dips.
The won ended local trade down 0.4 percent at 1,202.5 to the dollar, after rising as much as 0.6 percent in morning trade.