South Korean stocks closed 1.27 percent higher Tuesday as investor sentiment was boosted by upbeat expectations on second-quarter corporate earnings, analysts said.

The local currency rose against the U.S. dollar.

The benchmark Korea Composite Stock Price Index (KOSPI) soared 23.80 points to finish at 1,904.15. Trading volume was moderate at 347.8 million shares worth 4.24 trillion won ($3.79 billion) with advancers outpacing decliners 495 to 301.

"Investors are getting their hopes high as companies have started releasing their second-quarter results. The eased concerns on the U.S. tapering of stimulus and China's economic policy added to the positive sentiment," said Kim Hyung-ryeol, an analyst at Kyobo Securities Co.

Improved market conditions prompted foreigners to opt for risky assets. They scooped up a net 285.3 billion won worth of local equities. Institutions bought a net 55.4 billion won, extending their buying binge for a third consecutive session.

Large caps led the climb on a bullish run. Market behemoth Samsung Electronics shot up 2.67 percent to 1,307,000 won, with No. 1 steelmaker POSCO jumping 3.38 percent to 321,500 won.

Shares of major banking groups gained, with No. 4 player Shinhan Financial Group surging 3.45 percent to 40,450 won and the second-largest KB Financial Group moving up 3.3 percent to 36,000 won.

In contrast, auto stocks lost ground. Auto parts maker Hyundai Mobis fell 1.73 percent to 255,000 won and Kia Motors slipped 0.33 percent to 60,100 won.

The local currency ended at 1,117.00 won against the greenback, up 1.9 won from Monday's close, largely due to the KOSPI's gain, dealers said. (Yonhap News)