S.Korean shares drop on China's weak manufacturing

South Korean shares fell to the lowest in more than a week on Thursday as a private gauge of manufacturing activity in China, the country's largest trading partner, contracted to the three-month low.

The benchmark Korea Composite Stock Price Index (KOSPI) sank 28. 57 points, or 1.38 percent, to close at 2,044.21. Trading volume stood at 300.23 million shares worth 4.48 trillion won (4.38 billion U.S. dollars).

Local stocks extended its initial loss to the closing bell after news that HSBC's Purchasing Managers' Index fell to 50.3 in August, the lowest in three months and declining from July's 51.7.

Market watchers said China's economic momentum became weaker though still growing, triggering concerns over lower exports of South Korean companies to the world's second largest economy.

Adding to the concerns, U.S. monetary policymakers signaled the discussion of the rate hike timing occurring next year, according to the minutes of the July Federal Open Market Committee (FOMC) meeting.

U.S. Federal Reserve Chair Janet Yellen is scheduled to deliver a speech to global central bankers for the Jackson Hole meeting scheduled for Friday, triggering cautions about whether Yellen would comment on the rate increase.

Foreigners bought stocks, but their purchase stood merely at 300 million won. Local financial institutions dumped stocks worth more than 370 billion won, but retail investors hunted for bargains by snapping up 384.5 billion won worth of shares.

All top 10 large-cap shares lost ground except for SK Hynix, the world's second-largest memory chip maker that rose 1.1 percent.

Other stocks, including Samsung Electronics, Hyundai Motor, Hyundai Mobis, POSCO, Shinhan Financial Group, Kia Motors and SK Telecom, declined between 1-2 percent.

On the main bourse, three stocks declined for each two that rose.

The South Korean currency finished at 1,023.6 won against the greenback, down 0.9 won from Wednesday's close.

Bond prices ended lower. Yield on the liquid three-year treasury notes climbed 0.007 percentage point to 2.582 percent, but the return on the benchmark 10-year government bonds increased 0.007 percentage point to 3.149 percent.