The benchmark KOSPI surged 2.6 percent to close at 8,047.50 after climbing as high as 8,131.15 during the session. The index stayed above the 8,000 threshold throughout the day and passed the test above the new four-digit territory, a yawning stretch from the mid-2,000 range just a year ago.
Institutional investors led the advance, purchasing a net 911.1 billion won ($605.5 million) worth of shares on the main bourse. Retail investors sold a net 616.7 billion won, while foreign investors offloaded 184.1 billion won after reversing from earlier buying and extending their recent selling streak.
The junior KOSDAQ rose 1.0 percent to 1,172.50 after touching an intraday high of 1,205.12. Retail investors bought a net 224.2 billion won, while foreign and institutional investors sold 148.6 billion won and 33.7 billion won, respectively.
Semiconductor heavyweights drove the broader market higher as investors reinforced bets that South Korea's AI-led chip rally still has room to run.
Samsung Electronics rose 2.2 percent to close at 299,000 won, while SK hynix jumped 5.7 percent to 2,052,000 won, reinforcing expectations that the two stocks may settle into a new trading range after breaking major price milestones.
Gains spread across the semiconductor supply chain.
Samsung Electro-Mechanics surged 17.3 percent to 1,572,000 won, while DB HiTek soared 21.8 percent on expectations for passive fund inflows tied to its upcoming inclusion in the KOSPI 200 index.
AI-related component makers also rallied sharply. Samwha Capacitor hit the daily trading limit with a 30 percent jump as investors bet on stronger demand for multilayer ceramic capacitors, or MLCCs, used in AI servers and advanced electronics.
LG Innotek climbed 23.6 percent to 1,096,000 won, while Samwha Electronics rose 29.9 percent.
Shipbuilders were another major source of strength as expectations for expanding global defense and energy infrastructure spending continued lifting the sector.
Hanwha Ocean advanced 10.2 percent to 134,700 won, while HD Hyundai Heavy Industries gained 9.6 percent.
Automakers also joined the rally, with Hyundai Motor Company rising 5.2 percent to 689,000 won. LG Electronics added 1.1 percent to 239,500 won.
Some large-cap shares, however, lagged the broader market. POSCO Holdings fell 1.2 percent to 442,000 won, while Naver slipped 1.5 percent to 200,000 won. Samsung SDI declined 0.8 percent to 642,000 won and SK Square edged down 0.3 percent to 1,181,000 won.
The Korean won strengthened as risk appetite improved, closing at 1,504.30 per dollar, up 12.90 won from the previous session. The currency opened at 1,515.0 won and briefly weakened to around 1,516 won before reversing course during afternoon trading.
Still, foreign selling in equities suggested overseas investors have yet to fully return despite the record-setting rally. Foreigners were net buyers earlier in the session before turning sellers shortly before the close, according to market data.
Oil prices also rebounded Tuesday after plunging the previous session, reflecting lingering caution over Middle East developments despite growing optimism surrounding U.S.-Iran negotiations.
Brent crude traded above $98 per barrel, while West Texas Intermediate hovered near $91.60. Prices remained below recent highs as markets monitored whether diplomacy could eventually reopen the Strait of Hormuz.
Regional markets were mixed. Japan's Nikkei 225 slipped 0.3 percent after hitting a record high in the previous session, while China's Shanghai Composite also fell 0.3 percent. Hong Kong equities edged higher, supported by semiconductor-related shares.
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