South Korean stocks closed 0.41 percent lower Friday, led by steep falls in auto stocks following media reports that China may restrict new car purchases, analysts said. The local currency fell against the U.S. dollar.

The benchmark Korea Composite Stock Price Index (KOSPI) dropped 7.62 points to finish at 1,869.98. Trading volume was light at 262.3 million shares worth 3.42 trillion won ($3.04 billion), but gainers marginally outpaced losers 404 to 380.

"News from China that it may further expand its vehicle purchase quotas weighed down local auto shares, capping the KOSPI from continuing the Thursday rally," said Bae Sung-young, an analyst at Hyundai Securities Co.

The China Daily reported on Friday that Beijing may include eight more regions on the restriction list, which currently contains four cities, in order to counter worsening air quality due to severe smog.

Shares of Korean automakers plunged on the news. Industry leader Hyundai Motor tumbled 5.86 percent to 209,000 won, with its smaller affiliate Kia Motors slumping 4.72 percent to 58,600 won.

Meanwhile, market behemoth Samsung Electronics closed flat at 1,312,000 won after the 5 percent surge the previous day.

Other large-cap stocks finished bullish, extending their winning streak to a second day. No. 4 lender Shinhan Financial Group rose 0.25 percent to 39,850 won and top mobile carrier SK Telecom shot up 1.39 percent to 219,500 won.

In contrast, big insurers lost ground, with Samsung Life Insurance dipping 1.36 percent to 108,500 won.

The local currency ended at 1,124.50 won against the greenback, down 2.5 won from Thursday's close, largely due to the KOSPI's fall, dealers said.

Bond prices, which move inversely to yields, closed slightly lower. The yield on three-year Treasuries inched up 0.02 percentage point to 2.86 percent and the return on the benchmark five-year government bonds rose 0.01 percentage point to 3.11 percent. (Yonhap News)