Stocks close higher on optimism Fed's rate-hike respite

Screens in Hana Bank's trading room in central Seoul show the Kospi closing at 2,637.95 points on Tuesday, up 0.33 percent, or 8.60 points, from the previous trading session. [YONHAP]

Stocks closed higher Tuesday as investors remain optimistic about the U.S. Federal Reserve's likely rate-hike pause in the Federal Open Market Committee meeting. The won sharply rose against the dollar, gaining the most ground in four months.

The benchmark Kospi added 8.6 points, or 0.33 percent, to close at 2,637.95.

Trading volume was moderate at 674.4 million shares worth 10.9 trillion won ($8.56 billion), with the number of decliners outpacing gainers 470 to 385.

Foreign investors scooped up a net of 115.5 billion won worth of local shares, and institutions purchased a net of 153.9 billion won.

The U.S. central bank will decide on the key interest rate at its two-day meeting starting Tuesday, with the U.S. inflation data announcement scheduled for release later that day.

"The Kospi seems to be linked with the pace of U.S. tech blue chips, which have been on a bullish run amid slowing inflation," said analyst Choi Yoon-ah from Shinhan Securities. "But cosmetics and retail stocks will be affected by concerns over a Korea-China diplomatic row."

In Seoul, tech shares rose sharply as Samsung Electronics went up 1.41 percent to 72,000 won, and SK hynix jumped 4.09 percent to 119,500 won.

Hyundai Motor advanced 0.92 percent to 198,000 won, and Kia climbed 0.86 percent to 82,300 won.

Battery materials company Posco Future M grew 1.16 percent to 393,000 won.

Financial shares went south, with KB Financial Group dropping 0.51 percent to 48,500 won and Hana Financial Group sliding 1.68 percent to 41,000 won.

Retail and cosmetic shares were also among the losers from escalating tensions between Seoul and Beijing.

Hotel Shilla fell 0.4 percent to 73,800 won, and Shinsegae shed 1.3 percent to 190,200 won.

LG Household & Health Care sank 0.39 percent to 517,000 won.

The won closed at 1,271.4 won against the dollar, down 16.9 won from the previous session's close, the highest since February 13 when the local currency finished at 1,277.3 won.

Bond prices, which move inversely to yields, closed higher. The yield on three-year government bonds retreated 0.6 basis points to 3.484 percent, and the yield on benchmark 10-year government bonds lost 0.3 basis points to 3.738 percent.

BY SOHN DONG-JOO,YONHAP [sohn.dongjoo@joongang.co.kr]