Share prices closed lower as continued weakness in technology stocks outweighed the impact of Wall Street's rise overnight.

Domestic-demand plays, particularly tourism, got a lift as the government declared Jan 2 a holiday, creating a four-day New Year's weekend, in an effort to jump start consumer spending.

Investors again took a wary view of the export-sensitive technology sector, whose November sales reports are due for release by Dec 10. Sentiment has been undermined by weakness in the current quarter and a poor outlook for the first quarter of 2009.

The weighted index closed down 49.72 points or 1.14 pct at 4,307.26, off a low of 4,289.13 and a high of 4,379.25.

Turnover was 59.42 bln twd.

Michael On, president of Beyond Asset Management, said the outlook for the technology sector remains bleak.

"Weak demand is seen weighing down the industry this quarter and next," he said.

Steel stocks were hit by fears of a product price downswing, he added.

While tourism and some other domestic-driven plays attracted interest, turnover was thin, showing that caution is still the order of the day.

"With no signs pointing to a near-term turnaround on the macroeconomic side, investors are choosing to take a cautious stance, regardless of how cheap share prices have gotten," On said.

Decliners outnumbered advancers 757 to 536, with 332 stocks unchanged.

A total of 36 stocks closed limit-up, while 50 were limit-down.

The steel sector subindex was down 2.41 pct, electronics shed 2.24 pct and financials lost 0.08 pct.

Tourism soared 5.09 pct, retailing advanced 1.53 pct and food rose 1.09 pct.

The Taiwan dollar ended the morning session at 33.497 to the US dollar, compared with the previous close of 33.489.

China Airlines dropped 0.08 twd to 8.40. The company's president said traffic between Taiwan and the mainland should to increase to 12 mln passengers per year in three or four years, from the current 5 mln.

Uni-President Enterprises was steady at 33.50 after its Hong Kong-listed unit Uni-President China Holdings said a supplier in China would fail to deliver on 100 mln yuan worth of sugar contracts.

Mega Financial Holding lost 0.35 twd to 10.50, while Chinatrust Financial was flat at 11.50 despite reports that both are ready to invest in Chinese banks.

Among other stocks in focus, China Steel shed 0.65 twd to 21.35, Hotel Holiday Garden was limit-up 0.90 twd or 7 pct at 14.10, Formosa International Hotels soared 15.00 twd or 6.22 pct to 256.00 and Far Eastern Department Store gained 0.20 twd to 17.90.