South Korean shares rebounded on Tuesday after ending flat over the last two sessions as foreign and institutional investors bought more shares than they sold following positive economic indicators in Europe, analysts said.

The benchmark Korea Composite Stock Price Index (KOSPI) jumped 29.04 points, or 2.69 percent, to close at 1,875.41. Trading volume stood at 438.48 million shares worth 4.79 trillion won (4. 16 billion U.S. dollars).

The KOSPI took a solid start, and extended its initial gains throughout the session as stocks in Europe rose sharply overnight on positive economic data from Germany. A gauge of German factory output climbed to the higher-than-expected 48.4 in December, up from 47.9 tallied a month before. It indicated that the Europe's biggest economy may shore up the region's growth despite the lingering debt crisis.

"European stocks soared overnight helped by positive indicators from Germany, leading to the KOSPI's rebound today. Expectations for the U.S. manufacturing data scheduled for tonight boosted market sentiment," Jeong Seung-jae, an analyst at Mirae Asset Securities in Seoul, told Xinhua.

Jeong, however, noted that it remained hard to say that the KOSPI would show a solid upward trend going forward as the European economy was expected to slow down amid the remaining uncertainties over the fiscal crisis.

Foreign investors led the market rally, purchasing a net 315.3 billion won worth of local shares. Foreigners were net buyers on index futures by building up around 10,000 contracts for long position. "Offshore investors built up huge index futures, but it may turn to be short-lived as the local currency's appreciation against the dollar was around one fifth the KOSPI's rally," said Jeong.

The foreign buying in futures triggered program-linked buying that posted a net buying worth 953.6 billion won, the largest in almost one month. Institutional investors bought a net 285.8 billion won worth of stocks, but retail investors dumped a net 972. 9 billion won worth of shares, the biggest in one month, in a bid to lock in recent profits.

Shipbuilders, which were isolated from the KOSPI's past rally, gained sharply. The world's No.1 shipyard Hyundai Heavy Industries soared 5.8 percent to 273,500 won, and its rival Samsung Heavy Industries jumped 5.34 percent to 29,600 won. Daewoo Shipbuilding & Marine Engineering surged 6.82 percent to 25,050 won.

Market bellwether Samsung Electronics gained 2.31 percent to 1, 105,000 won, the highest close in its history. Top steelmaker POSCO gained 3.06 percent, and Hyundai Merchant Marine rose 3.23 percent to 25,550 won.

Auto shares ended bullish after local automakers posted record sales last year. Global car sales by the nation's five automakers, including Hyundai Motor, Kia Motors, GM Korea, Renault Samsung Motors and Ssangyong Motor, reached a record high of 7,758,857 vehicles in 2011, up 13.4 percent from a year earlier.

The nation's No.1 automaker Hyundai Motor jumped 4.24 percent to 221,500 won, and its affiliate Kia Motors gained 2.41 percent to 68,100 won. Top auto parts maker Hyundai Mobis climbed 3.76 percent to 303,500 won.

The local currency closed at 1,150.8 won against the greenback, up 5 won from Monday's close.

Bond prices ended lower. The yield on the liquid three-year treasury notes added 0.01 percentage point to 3.35 percent, and the return on the benchmark five-year government bonds rose 0.02 percentage point to 3.49 percent.