The KOSPI sank more than 3 percent in early trade to the 6,500 level, but recovered all of its losses and turned higher. The index started weak on rate worries after hawkish remarks by U.S. Federal Reserve Chair Kevin Warsh, but climbed as heavyweight semiconductor shares such as Samsung Electronics and SK Hynix rebounded.

On Aug. 31, the KOSPI closed up 31.14 points, or 0.46 percent, at 6,820.02. It opened down 175.30 points, or 2.58 percent, at 6,613.58 and at one point fell more than 3 percent, but later pared losses and succeeded in turning higher.

In the main board market, retail investors net sold 143.7 billion won, foreigners net sold 639.8 billion won and institutions net sold 793.8 billion won.

Domestic stocks early in the session reflected the impact of Warsh's hawkish remarks. Uncertainty over the U.S. rate path grew, and U.S. technology and semiconductor shares fell on Aug. 28, with that impact spilling over into the local market.

But bargain hunting emerged during the session and heavyweight semiconductor shares turned higher. Samsung Electronics closed up 1.17 percent at 260,000 won, and SK Hynix rose 1.27 percent to 1,674,000 won.

Elsewhere, SK Square rose 0.88 percent, Samsung Electro-Mechanics gained 2.60 percent, Samsung Biologics added 2.15 percent and KB Financial climbed 0.99 percent. LG Energy Solution and Hyundai Motor also rose 2.16 percent and 1.00 percent, respectively.

Samsung Life Insurance, however, fell 1.29 percent.

The Kosdaq failed to rebound. The Kosdaq ended down 4.12 points, or 0.49 percent, at 834.29. It tumbled to the low 800s early in the session and recovered most of the decline, but did not turn higher.

In the Seoul foreign exchange market, the won-dollar exchange rate was 1,369.40 won, down 11.60 won from the previous session.