South Korean stocks tumbled Thursday as foreign investors dumped local listed stocks, ending the third-day rally through Wednesday.

The benchmark Korea Composite Stock Price Index (KOSPI) declined 40.78 points, or 1.68 percent, to settle at 2,386.85. Trading volume stood at 299.95 million shares worth 6.2 trillion won (5.9 billion U.S. dollars).

The KOSPI extended its initial loss throughout the session as foreigners dumped 404 billion won worth of domestic stocks.

Geopolitical risks escalated on the Korean Peninsula as the Democratic People's Republic of Korea (DPRK) test-fired what it called an intercontinental ballistic missile (ICBM) around midnight on July 28.

U.S. President Donald Trump signed a bill imposing new sanctions on the DPRK into law overnight, boosting worry about the already heightened tensions on the peninsula.

The South Korean government announced comprehensive measures to control speculative investment in real estate, fueling concerns about the possible slump in the property market.

The government also unveiled a plan to revise a tax code as part of efforts to impose higher corporate tax on big-profit corporations and finance the future welfare demand.

Institutional and individual investors bought shares worth 10 billion won and 357 billion won respectively, limiting the KOSPI's further decline.

Market watchers said the Trump administration's hardline policy toward the DPRK boosted geopolitical risks, among foreign investors, noting that the revised tax code would increase tax burden on big companies.

Market bellwether Samsung Electronics declined 2.4 percent, and memory chip giant SK Hynix dropped 3.7 percent. The biggest life insurer Samsung Life Insurance retreated 2.8 percent, and the most-used search engine Naver sank 2.1 percent.

Leading chemical firm LG chem shed 1.4 percent, but the biggest automaker Hyundai Motor gained 0.7 percent. The No.1 auto parts maker Hyundai Mobis advanced 1.4 percent, and the state-run power supplier Korea Electric Power Corp. closed unchanged.

South Korea's currency finished at 1,128.8 won against the greenback, down 4.8 won from the previous close.

Bond prices ended higher. Yields on the liquid three-year treasury notes fell 0.3 basis points to 1.730 percent, and the return on the benchmark 10-year government bonds lost 1.1 basis points to 2.247 percent.