Synopsis South Korean stocks plunged sharply on Tuesday, with the Kospi falling over 8% from record highs as investors sold off major chip stocks amid concerns that the market rally had become overstretched. SK Hynix dropped more than 11%, while Samsung Electronics fell over 8%, prompting the Korea Exchange to halt trading for 20 minutes through circuit breakers.AP South Korean stocks plunged sharply on Tuesday, with the Kospi falling over 8% from record highs. High-flying South Korean equities slid sharply from an all-time high on Tuesday morning as investors dumped chip heavyweights amid growing concern that the rally had grown overstretched. The Kospi deepened its losses to 8.3%, with SK Hynix Inc. shedding more than 11% and Samsung Electronics Co. falling over 8%. Korea Exchange suspended trading for 20 minutes, activating market circuit breakers that have been triggered with greater regularity this year.The retreat came after the benchmark index resumed its upward climb earlier this month, notching a series of record highs and crossing the 9,000 level for the first time as markets looked past uncertainty stemming from the Iran war. Risk appetite around high-flying tech names turned fragile during Monday's US session, with SpaceX shares sliding and focus shifting toward memory chipmaker Micron Technology Inc.'s quarterly earnings due later this week."Micron's earnings this week are the real test," said Dilin Wu, a strategist at Pepperstone Group, who was quoted as saying by Bloomberg. "A strong print is a direct read-through for Samsung and SK Hynix — that's the number that tells you whether the hardware side of this trade still has legs."Also Read | 3 AI stocks outweigh all of India: Why this concentration is sounding EM alarm bellsSeveral signals had already pointed to an overheated market in recent sessions. SK Hynix shares had climbed more than 2% for eight consecutive days, pushing its year-to-date gain to nearly 350% earlier this week and outstripping the advance posted by peer Samsung. Lee Jae Mahn, a strategist at Hana Securities in Seoul, argued that for the Kospi to reflect fair value, Samsung's stock price appreciation should lead that of SK Hynix, given the former's stronger earnings outlook.Foreign investors offloaded more than 4 trillion won ($2.6 billion) worth of Kospi shares by midday, even as retail traders moved to buy the dip.The latest Kospi slump underscores the rising volatility of what has been the world's top-performing major equity index this year. Leveraged exchange-traded funds tied to the chip giants have magnified price swings, prompting the country's top financial regulator to express regret over having permitted the high-risk products. Officials are weighing stabilization measures to contain potential fallout from violent ETF swings tracking Samsung Electronics and SK Hynix, Financial Supervisory Service Governor Lee Chan-jin said at a briefing Monday.Adding to the headwinds, traders are also contending with expectations of a faster rate-hike cycle from a more assertive US Federal Reserve under newly appointed Chair Kevin Warsh. Fed funds futures now assign a 75% probability to a rate increase by September, while BofA Global Research and Deutsche Bank have both scrapped earlier calls for steady policy, now projecting a hike before year-end on the back of persistent economic resilience."The Fed was perceived as more hawkish than expected and markets have reacted by lifting the USD against most currencies," said Fiona Lim, senior FX strategist at Maybank Singapore. "Our house view is for the Fed to stand pat this year and hawkish positioning to unwind, potentially bringing the USD lower eventually."The dollar index, which tracks the greenback against a basket of major currencies, nudged up slightly to 101.01, remaining close to the one-year peak of 101.13 reached last week. The stronger dollar weighed on most emerging Asian currencies, which weakened broadly across the board.(Inputs from agencies)Read More News on(What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2025, Share Market on Budget 2025 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .) Subscribe to ET Prime and read the Economic Times ePaper Online.and Sensex Today. 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