South Korean shares are expected to face increased volatility next week as the US Federal Reserve is set to decide interest rates and a set of other major events are in store, analysts said Saturday.

The benchmark Korea Composite Stock Price Index closed at 2,097.35 points on Friday, up 0.89 percent from a week ago.

This week, the local stock market started a tad higher on continued foreign investors' buying binge, and top market cap Samsung Electronics extended gains on a rosy outlook for its earnings.

But a growing spat between South Korea and China over the deployment of a US missile defense system hit cosmetics firms and other retailers hard, limiting further market gain, and investors remained cautious ahead of the Fed's two-day meeting that starts on March 15.

The local market remained unfazed by the Constitutional Court's ruling to oust President Park Guen-hye, which helped remove one important element of political uncertainty, allowing a new president to come in.

"The Trump administration is set to unveil its 2018 budget plan, and the Fed is to decide whether to raise interest rates or not," said Jo Yon-ju, an analyst at NH Investment & Securities.

"A slew of such major events may increase market volatility...and the key is whether the Fed will signal the pace of rate hikes in the coming months," the analyst said.

Analysts said sound economic data and increased risky appetites may put a floor under the market, and investors are advised to snatch up economic cycle-sensitive and market heavyweights. (Yonhap)