SEOUL (Reuters) - The South Korean won fell to a fresh 14-month low on Wednesday, pressured by the yen slumping to a 7-year low against theUS dollar.

The won was quoted at 1,103.2 to the dollar as of 0205 GMT, just off a session low of 1,104.6 which was the lowest level since Sept. 2, 2013.

The local currency has fallen nearly 3 per cent this month, squeezed by divergent directions between the increasingly hawkish U.S Federal Reserve and recession-hit Japan's aggressive stimulus moves.

The yen touched its lowest since October 2007 after Japanese Prime Minister Shinzo Abe called a fresh election and reaffirmed he would use all available tools to support his country's flagging economy.

"The yen is going to reach a floor at some point, with much of the worries over Japan's political stability now in the rear-view mirror," said Ma Ju-ok, an economist at Kiwoom Securities.

Liquidation of long-dollar positions for profit-taking and exporter demand to fund domestic settlements are likely to cap further declines in the won, analysts said.

South Korean shares shed Wednesday's early gains on nagging concerns over a weakening yen and its effect on local firms'export competitiveness.

The Korea Composite Stock Price Index (KOSPI) was down 0.24 per cent at 1,962.37 points at 0205 GMT.

"Volatile exchange rates and growing expectations of lacklustre earnings in the fourth quarter have sapped further momentum," said Lee Aram, an analyst at NH Investment & Securities.

Automakers, which compete fiercely with Japanese rivals and are highly sensitive to changes in the yen's value, led Wednesday's falls.

Hyundai Motor fell 3.9 per cent while sister automaker Kia Motors shed 1.8 percent.

Shares in Samsung Engineering and Samsung Heavy Industries tumbled 6.3 per cent and 3.6 per cent respectively after their proposed merger was scuppered.