PYEONGCHANG, South Korea, July 5 - Tears flowed, hearts sank and shares fell as South Koreans came to terms with the news Pyeongchang had lost out to Russia's Sochi in the race to stage the 2014 Winter Olympics.

The rustic South Korean town, beaten by three votes four years ago when Vancouver was awarded the 2010 Winter Games, lost out to Sochi in the second round of voting on Wednesday at the International Olympic Committee session in Guatemala City.

Local media suggested Pyeonchang's bid may have been "poisoned" by South Korean cities winning the 2011 world athletics championships (Daegu) and the 2014 Asian Games (Incheon).

The IOC may have been reluctant to see Korea win three major international sporting events and competing cities had been calling for a fair distribution, Yonhap News agency said.

Residents of Pyeongchang were bloodied but unbowed after another devastating defeat

"I'm so heartbroken," said community leader Kim Bong-kyu, who woke his neighbours at 5 a.m. to join what many thought would be the biggest celebration of their lives.

"We must try again," he said, his eyes red and full of tears. "I am absolutely sure we will win next time."

Some 2,000 residents had gathered on a chilly, foggy morning at city hall, anticipating a decision that would put the scenic town on the world map.

But nervous excitement gave way to stunned silence when IOC President Jacques Rogge named the Russian Black Sea resort of Sochi as the winner.

"I'm 82 years old. I wanted to see the glory before I die," said Shim Jung-ok as she trudged out of Pyeongchang City Hall courtyard. "I'm so disappointed. I'm crushed."

FOUGHT HONOURABLY

The 45,000 people of Pyeongchang about 170 km (110 miles) east of Seoul must try to get back on their feet and build on their eight years of work and try once more, said South Korean presidential hopeful Chung Dong-young.

"Pyeongchang was an unknown town. Now it is on the world stage, and it fought well and fought honourably," said Chung wiping away tears.

Shares that had risen in anticipation Pyeongchang would win slumped when trading began on Korea's markets on Thursday.

Ski resort and casino operator Kangwon Land Inc. <035250.KS> plunged more than 11 percent while the main KOSPI <.KS11> posted slight gains.

"What did South Korea not have that the other place did?" asked sixth-grader Lee Da-hae as she chatted with friends on their way to school.

"This is all because they looked down on us for being a small country. Why else would we lose?"

Shortly after the decision thousands filed out of city hall, back to their farms, eateries and small corner shops.

"All that's left is garbage to clean up," a city hall worker said as Pyeongchang returned to reality.