South Korean stocks are expected to enjoy a short-term rebound next week as uncertainty could be reduced after the Federal Reserve's rate-setting meeting, analysts said Saturday.

The benchmark Korea Composite Stock Price Index (KOSPI) closed at 1,948.62 on Friday, down 1.3 percent from a week earlier.

This marked the second straight week of declines.
 

The heightened possibility of a U.S. rate hike and worries over the low crude oil prices weighed on investor sentiment.

Foreign investors led the decline, dumping a net 1.18 trillion won (US$1 billion) worth of shares this week.

The market started bearish this week after U.S. Fed Chair Janet Yellen said earlier that she was "looking forward" to the U.S. interest rate rise.

The market remained downbeat almost throughout the week as investors took a wait-and-see approach ahead of the upcoming Fed meeting, which will kick off on Tuesday.

Analysts said that the bearish mood could continue at the start of next week but it could improve following the Fed meeting as it is expected to remove the long-haul uncertainty hanging over the stock market.

"We put more weight behind the expectations that policy uncertainty could ease following the FOMC meeting with the index likely to enjoy a short-term rebound from recent setbacks," said Koh Seung-hee, an analyst at KDB Daewoo Securities Co.

"The key is how fast the interest rate will be raised down the road," Koh added.

"The Fed chair earlier emphasized that the rate hike will be carried out slowly."

Market watchers say that the chances for a rate hike would be around 80 percent.

The rate decision will be announced at the end of the two-day Fed meeting on Wednesday.

Other market-moving data that investors should be focused on next week include the U.S. industrial output data for November, which is expected to improve slightly compared with a month earlier.

Koh said that foreign investors will likely remain a net seller next week but institutions will prop up the market by purchasing more shares than they sell, a similar pattern witnessed for the past few weeks. (Yonhap)