* U.S. budget debate, Middle East tensions hit stocks
* Telecom shares buck trend
* Seoul Pharma rallies on media report of Pfizer deal
By Hyunjoo Jin
SEOUL, Nov 15 (Reuters) - Seoul shares slid to their lowest closing level since August 3 on Thursday as Middle East conflict battered investor confidence already hurt by concerns about U.S. budget wrangling.
Foreigners continued to offload South Korean stocks for a sixth consecutive session, selling a net 261 billion Korean won ($240 million) worth of shares.
The Korea Composite Stock Price Index (KOSPI) ended down 1.2 percent to 1,870.72 points.
"Investors are dumping stocks, doubting whether the U.S. will be able to quickly resolve a looming fiscal crisis. Corporate earnings outlooks have been also downgraded, weighing on the market," said Lee Seon-yeob, an analyst at Shinhan Investment.
"Investors see little reason to buy stocks and fear that the KOSPI may fall further," he said.
U.S. President Barack Obama set up a drawn-out fight over the fiscal cliff when he stuck to his pledge to raise taxes on the wealthy as the first step in a budget tussle that if not concluded soon could tip the U.S. economy into recession.
Israel launched a major offensive against Palestinian militants in Gaza on Wednesday, killing the military commander of Islamist group Hamas in an air strike.
The KOSPI showed a muted response to China's carefully foreshadowed appointment of Xi Jinping as the new leader of the world's second-biggest economy.
While most sectors lost ground, telecom shares managed to post gains, with KT up 0.9 percent and SK Telecom edging up 0.3 percent.
Large stocks fell, with Samsung Electronics down 1.8 percent and Hyundai Motor losing 2.3 percent.
Small-cap Seoul Pharma Co Ltd bucked the trend and finished up by the daily limit of 15 percent after a media report said the drugmaker was in talks with Pfizer Inc to have its erectile dysfunction drug branded as Viagra in South Korea.
Seoul Pharma and the South Korean unit of Pfizer said nothing has been decided.
Move on day -1.23 percent
12-month high 2,057.28 14 March 2012
12-month low 1,750.60 19 Dec 2011
Change on yr +2.46 percent
All-time high 2,231.47 27 April 2011
All-time low 93.10 6 January 1981 ($1 = 1084.9500 Korean won) (Editing by Eric Meijer)