▲ The closing benchmark KOSPI is shown on a screen inside the dealing room in Hana Bank in central Seoul on July 20, 2026. (Yonhap)

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SEOUL, July 20 (Yonhap) -- South Korean stocks closed more than 4 percent lower Monday, as artificial intelligence (AI) woes resurfaced amid escalating tensions in the Middle East. The Korean won rose against the U.S. dollar.

The benchmark Korea Composite Stock Price Index (KOSPI) plunged 304.33 points, or 4.46 percent, to 6,516.27points, after falling as low as 6,472.80.

Trade volume was moderate at 339.5 million shares worth 28.4 trillion won (US$19.2 billion). Losers far outnumbered winners 796 to 97.

Institutional investors were net sellers, offloading 919.1 billion won. Foreigners and retail investors snapped up a combined net 864.4 billion won.

"Unfavorable factors related to semiconductors and worsening conflict risks between the United States and Iran dampened investor sentiment," said Lee Kyoung-min, an analyst at Daishin Securities.

On Friday, U.S. stocks closed lower, weighed down by a decline in semiconductors, as the latest AI model unveiled by Chinese startup Moonshot renewed concerns over global spending on AI infrastructure, including semiconductors.

The model, called Kimi K3 and unveiled Friday (local time), is considered to deliver performance, approaching most advanced AI models from the U.S.' OpenAI and Anthropic, at a much lower cost.

This raised speculation over whether the massive capital spending from hyperscalers could be justified, adding downward pressure to the stock market, the analyst added.

Also weighing on the KOSPI was escalating tensions in the Middle East, after the U.S. military announced a third U.S. soldier died in Iraq during back-and-forth attacks between the U.S. and Iran.

Most shares closed lower.

Market top-cap Samsung Electronics dipped 4.31 percent to 244,000 won, while its rival SK hynix shed 4.23 percent to 1,764,000 won.

AI infrastructure-related shares also lost ground on reemerging concerns over the sector.

LS Electric lost 5.63 percent to 179,300 won, and Hyosung Heavy Industries Corp. fell 8.96 percent to 2,539,000 won.

Among the winners were Shipper HMM, which inched up 0.1 percent to 20,150 won, and refiner S-Oil, which added 1.24 percent to 146,700 won.

The Korean won closed at 1,478.4 won against the U.S. dollar as of 3:30 p.m., up 0.1 won from the previous session.

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