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SEOUL, Oct 9 (Reuters) Seoul shares dropped on Monday to their lowest in eight weeks after North Korea said it had tested a nuclear device, with rattled investors selling off market heavyweights such as Samsung Electronics.

Retail investors were the heaviest sellers of shares, with the junior retail-driven Kosdaq <.kq11> market dropping 7.44 percent on the news to hit its lowest level since Sept. 16.

The benchmark Korea Composite Stock Price Index (KOSPI) <.ks11> fell 2.64 percent to 1,316.30 by 0323 GMT, after earlier dropping 3.6 percent to its lowest intraday level since Aug. 14.

If it stays around current levels the index appears headed to its biggest one-day fall since June 13.

Kim Seong-ki, chief investment officer at SH Asset Management, said a nuclear test by North Korea was certain to have a big impact.

''The dilemma of course is: when is it time to buy?,'' he added.

''I can't really tell you because the outcome of this issue is so out of our control.'' The rising tensions on the Korean peninsula come ahead of the start of the earnings reporting season on Tuesday, which is likely to heighten an already cautious market mood and prevent any meaningful rebound in the short-term, analysts warned.

However, institutional investors and foreign investors were net buyers of shares, signalling confidence among some quarters that the risks from a potential North Korean nuclear test would eventually subside.

''Looking back at history, this kind of North Korea issue always ends up as a good chance to buy shares at a cheaper price. We are in a scenario in which a war is not likely to happen. It's mainly political posturing,'' said Kim Hyun-tae, a fund manager at Landmark Investment Management.

The KOSPI had dropped 1.6 percent on Wednesday, the last trading session last week before markets closed for the South Korean thanksgiving holiday.

Samsung Electronics Co. Ltd. , which accounts for around one-fifth of the KOSPI's market capitalisation dropped 1.7 percent to 637,000 won.

LG.Philips LCD Co. Ltd. dropped 3.19 percent to 30,300 won. The flat panel maker is expected to report results on Tuesday.

The junior Kosdaq slid, with larger stocks such as online game developer Webzen Inc. diving 11.02 percent to 10,900 won.

But among a short list of advancers, POSCO Co. Ltd. rose 0.63 percent to 240,500 won amid expectations for further consolidation in the steel sector after India's Tata Steel Ltd.

said on Thursday it is considering a takeover bid for Anglo Dutch rival Corus Group Plc . [ID:nLO5700486] ($1=958.9 Won) REUTERS DKA BD0951