Electronic board at a dealing room of the Hana Bank headquarters in Seoul shows the Kospi closing at 2,963.57 points on Wednesday. (Yonhap)

The Korean stock market rallied early Wednesday, with the benchmark Kospi breaking above 2,700 points during trading hours for the first time in nearly two years as the market tracked overnight Wall Street gains.

The local benchmark Kospi touched 2,701.45 points during intraday trading. The peak came shortly after it opened at 2,694.71, marking a 12.9 points rise from the previous close at 2,681.81.

After hitting a record high not seen since May 2022, the main index wiped out the gains as investors turned to profit-taking, closing at 2693.57, up 11.76 points (0.44 percent) from the previous trading session.

The upsurge in Seoul stocks tracked overnight gains from the US stock market led by big-name AI tech shares such as Oracle and Nvidia. The S&P 500 closed at a record high, while other major indices including the Dow Jones Industrial Average and Nasdaq Composite Index also rallied.

Despite higher-than-expected US consumer price data indicating February inflation at 3.2 percent, investors' hopes of interest rate cuts in the coming months appeared undimmed.

“With the growing market expectations of the base interest rate cut, the US stocks rallied backed by the rebound in AI shares,” analyst Han Ji-young from Kiwoom Securities said. “The AI rally stretched out to the local stock market.”

Among the top 10 shares on the Kospi, the stocks of leading automaker Hyundai Motor Group and tech heavyweight Samsung Electronics advanced 2.9 percent and 0.8 percent, respectively. Shares of biopharmaceutical giants Celltrion and Samsung Biologics each dropped by 1.6 percent and 1.43 percent. Chipmaker SK hynix lost 1.27 percent and battery maker LG Energy Solution shed 0.11 percent.

With expectations on the government’s “corporate value-up” program, banking shares, assessed to be some of the most undervalued stocks here, rallied.

Shares of all four top financial groups here advanced, with KB Financial Group stocks rising by 5.9 percent, Shinhan by 4.6 percent, Hana by 2.2 percent and Woori by 2.3 percent. Shares of Meritz Financial Group, the Industrial Bank of Korea and JB Financial Group surged as well.

Foreign investors net bought 335.5 billion won of shares, while institutions and retail investors dumped 110.1 billion won and 253.8 billion won each on the market, Wednesday.

Korea's secondary bourse Kosdaq closed at 889.93, up 0.22 points (0.02 percent) from the previous trading.

The Korean won's exchange rate against the US dollar closed at 1,314.5 won, up 3.5 won from Tuesday. In recent months, the local currency has strengthened against the greenback, with the exchange rate standing under 1,350 won.

Kospi’s advance on Wednesday partly stems from a steady growth in the inflow of foreign capital, which has been observed in past months.

According to the data from the Bank of Korea released Wednesday, foreign capital worth $5.59 billion was injected into local shares in February. This was the highest figure in nearly 11 years since September 2013.

Foreign investors have been on a buying streak on the local stock market for the past four months, net purchasing $2.64 billion worth of shares in November, $2.52 billion in December and $2.51 billion in January.

"The inflow of foreign capital rose with the growing expectation on the rebound in the chip industry, the improvement in the current account, and the government's measures to boost the undervalued stock market,” an official from the Bank of Korea said.

In late February, local authorities introduced a set of measures to encourage listed companies to boost their market valuation. While the directive advises companies to disclose their plans to enhance corporate value and shareholder returns, details of the program will be released in May.