Seoul shares ease amid caution, banks tracked

The Korea Composite Stock Price Index (KOSPI) was down 0.97 percent at 1,822.26 points as of 0213 GMT.

"Investors are largely taking a wait-and-see stance as there have not been notable developments in Europe over the weekend, and while the world awaits the US Federal Reserve meeting," said Eom Tae-woong, a market analyst at Bookook Securities.

A weekend of disappointing news from the euro zone prompted market players to cut risk and move into gold and US Treasuries, even as speculation grew that the Federal Reserve will announce further quantitative steps at a policy meeting scheduled this week.

"Caution will persist until major events provide the market clearer direction," Eom added.

Shares surged in some savings banks that survived regulatory scrutiny and avoided a temporary closing order.

Solomon Savings Bank advanced 7.1 percent after jumping by nearly the daily limit of 15 percent, and Jinheung Savings Bank gained 1.1 percent.

South Korea's financial regulators announced Sunday that they imposed a six-month suspension on seven savings banks including major Jeil Savings Bank and Tomato Savings Bank as the sector has been hit by soured construction loan007200.s.

Shares in commercial banks reversed earlier falls.

"We expects limited negative impact on commercial lenders from savings banks' plight...at least the bad news is out and one uncertainty has been removed," said Bae Jung-hyun, an analyst at SK Securities.

Savings banks account for only 2.8 percent of South Korea's financial services industry, but the government wants to stem further contagion in the sector, which could cause panic among customers and bank runs.

Shares in Hana Financial Group were flat and Woori Finance Holdings advanced 2 percent.

STX Group related stocks jumped after local media reported that an internal report by STX Corp concluded the risks associated with a planned takeover of Hynix Semiconductor Inc were higher than originally expected.

"The news has fuelled expectations STX will give up pursuing Hynix, and this is helping boost appetite for the shares," said Lee Kang-rok, an analyst at Kyobo Securities.

Shares in STX Corp jumped 5.1 percent and STX Engine was up 3.4 percent.

But shipyards struggled as appetite for the cyclical sector waned on an increasingly uncertain global economic outlook.

Daewoo Shipbuilding & Marine Engineering fell 1.2 percent and Hanjin Heavy Industries lost 2.2 percent.

Defensive issues that outperformed in recent sessions succumbed to profit-taking.

Shares in cosmetics firm Amorepacific fell 1.1 percent and SK Telecom , the country's top wireless carrier, tumbled 4.4 percent.

Copyright Reuters, 2011