Seoul shares fell by more than 1 per cent on Thursday as retail investors heavily sold tech stocks following deep declines over the previous two sessions amid concerns over artificial intelligence (AI) spending and uncertainty about the Federal Reserve's interest rate outlook.

The Korean won strengthened against the U.S. dollar. After volatile trading, the benchmark Korea Composite Stock Price Index (KOSPI) lost 69.68 points, or 1.23 percent, to close at 5,593.56 after plunging to an intraday low of 5,547.41.

The index also rose as high as 5,976.82 at one point. After opening 0.33 percent higher, the KOSPI reversed course to end in negative territory, reports Yonhap news agency.

The broad-based sell-off came amid uncertainty over the Fed's future policy path and renewed concerns over whether heavy AI-related investment by major technology companies will generate sufficient returns to justify their elevated valuations, analysts said.

The Fed on Wednesday (U.S. time) left its benchmark interest rate unchanged at 3.5-3.75 percent, marking its fifth consecutive meeting without a rate change.

The U.S. central bank offered little guidance on the future path of interest rates, leaving investors uncertain about the timing of any policy easing.

Trade volume was moderate at 375.17 million shares worth 37.6 trillion won (US$26.2 billion), with gainers outnumbering losers 606 to 277.

Institutions and foreigners purchased a net 66.3 billion won and 1.34 trillion won worth of stocks, respectively. Individuals sold a net 1.43 trillion won.

Tech stocks led the decline. Market bellwether Samsung Electronics fell 0.72 percent to 207,000 won, and SK hynix plunged 5.64 percent to 1.32 million won.

Top carmaker Hyundai Motor declined 0.71 percent to 351,000 won, and national flag carrier Korean Air sank 0.6 percent to 24,650 won.

Internet giant Naver slid 4.05 percent to 201,500 won, and energy firm Doosan Enerbility dipped 0.99 percent to 60,200 won.

Among gainers, HD Korea Shipbuilding & Offshore Engineering (HD KSOE) rose 10 percent to 368,500 won, and defence giant Hanwha Aerospace jumped 6.79 percent to 865,000 won.

HD KSOE said on Thursday it has signed a memorandum of understanding (MOU) with U.S.-based Fraser Industries LLC to help revitalize the U.S. shipbuilding industry under Seoul's "Make American Shipbuilding Great Again" initiative.

The Korean won was quoted at 1,437.4 won against the U.S. dollar as of 3:30 p.m., compared with 1,446.7 won a day earlier.

Bond prices, which move inversely to yields, closed lower. The yield on three-year Treasurys rose 3.1 basis points to 3.831 percent, while the return on the benchmark five-year government bonds climbed 4.1 basis points to 4.078 percent.