Financial shares also dropped, despite data showing South Korea's industrial output grew more than expected in September, as a fall in consumer goods sales and capital investment sparked concerns about the pace of economic recovery.
Kia Motors Corp, the country's No 2 carmaker, pared heavy losses to end 0.83 percent lower at 17,850 won, as investors bet its earnings would improve. Kia posted on Friday its first quarterly operating loss in six years. "The recent news from the US has not been good, and with rising US rates already tightening money flows into global equity markets, we could face a problem in the short term," said Kim Seong-ki, a fund manager at Choking Investment Trust Management.
The benchmark Korea Composite Stock Price Index (KOSPI) closed down 2.2 percent at 1,140.72, its lowest close since ending at 1,122.65 on September 6.
Shares fell 3.6 percent for the week, marking the fourth consecutive weekly decline. After turning net buyers on Thursday for the first time in 25 sessions, foreign investors were again sellers of local equities, offloading a net 56.9 billion won, data showed.
Wall Street fell on Thursday for a third consecutive day, hit by a decline in durable goods orders, which economists view as an indicator of future business spending.
US stocks were also hit by negative corporate news, with rumours that General Motors Corp would file for bankruptcy and as US chip makers dipped sharply on worries about lower holiday spending.
Export-focused firms fell, with Samsung Electronics Co Ltd, the world's top maker of memory chips, down 2.15 percent to 546,000 won. Flat screen maker LG.Philips LCD Co Ltd fell 2.86 percent to close at 37,400 won while South Korea's leading carmaker Hyundai Motor Co fell 2.22 percent to 74,800 won.
The United States accounts for about one-fifth of South Korea's total exports. Financials also fell sharply after weaker consumer goods sales data disappointed investors.
Kookmin Bank, the country's top lender, dropped 4.58 percent to 56,300 won, while Samsung Fire and Marine Insurance Co Ltd fell 4.81 percent to 99,000 won.
Korea Exchange Bank regained part of sharp losses to close 1.36 percent lower at 10,900 won. The lender said on Friday its third-quarter net profit had quadrupled from a year ago.
Other consumer demand-dependant shares fell, with Hyundai Department Store Co Ltd ending down 3.2 percent to 66,600 won. Trade volume reached 335.3 million shares worth 2.9 trillion won compared to 445.8 million shares worth 4.3 trillion won on Thursday.
Declines far outnumbered gainers by 620 to 141 with 55 titles ending flat. Retail investors bought a net of 299 billion won. The December KOSPI 200 futures index fell 2.50 points to 146.30, while the underlying KOSPI 200 spot index dropped 3.33 points to 146.55.
South Korea's junior and tech heavy Kosdaq market fell 1.25 percent to finish at 580.92.