SEOUL-- Foreign investors are expected to remain cautious due to possible volatility in the financial markets following North Korea's latest nuclear test, a report showed Monday.

Citigroup said international financial market players are expected to maintain a risk averse stance this week, according to the report by the Korea Center for International Finance.

A dealer in Hong Kong also said the tensions over North Korea could make investors in South Korea and other financial markets less willing to take risks, the report by the center said, without identifying the dealer.

The escalating tension took a toll on South Korea's stock markets and currency.

The benchmark Korea Composite Stock Price Index dropped 28.04 points, or 1.19 percent, to 2,329.65. The local currency closed at 1,133.00 won against the U.S. dollar, down 10.20 won from the previous session's close.

Japanese investment bank Nomura said the latest nuclear test has raised the risk that the U.S. could use a military option to end North Korea's nuclear program, and said a diplomatic solution may be limited for the time being.

The assessment came a day after North Korea claimed it had successfully conducted a test of a hydrogen bomb that can be mounted on an intercontinental ballistic missile.

North Korea has been seeking to develop a nuclear-tipped ICBM capable of hitting the mainland U.S., claiming its nuclear program is aimed at countering Washington's hostile policy towards it.

Source: Yonhap News Agency