Korean Artillery Exchange and Irish Debt Hit Markets
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Korean Artillery Exchange and Irish Debt Hit Markets
By Alex Richardson
November 23, 2010
SINGAPORE (Reuters) - The dollar and U.S. Treasuries rose and U.S. stock futures fell on Tuesday after a major exchange of artillery fire on the Korean peninsula.
The euro, stocks and commodities also fell as a bailout for Ireland failed to allay fears of a wider crisis.
North Korean artillery fired dozens of shells onto a South Korean island near their disputed sea border, wounding several people, setting fire to buildings and prompting a return of fire by the South, Seoul's military and media reported.
Seoul's financial markets had already closed but international markets reacted, with the dollar up 0.4 percent on the day against a basket of currency. The dollar index <.DXY> rose from 78.77 before the reports to a session high of 79.07.
U.S. 10-year Treasury futures, a traditional safe haven, were up 0.4 percent on the day and U.S. S&P 500 stock index futures were down 0.9 percent. The won tumbled in offshore markets and the yen eased.
European markets were seen opening mixed,
with the Korean drama adding to concerns about the euro zone.
As Beijing tightens monetary policy to rein in inflation, worries of faltering Chinese demand for raw materials -- in the short term at least -- knocked metals prices and were another factor hammering shares, particular in resource-focused Australia.
"Investors seem unable to move beyond European debt contagion fears and concerns of further China policy tightening," said IG Markets strategist Ben Potter.
The euro had initially spiked on Monday on news of a European Union and International Monetary Fund bailout for Ireland, where a property bust has pushed the nation's banks to the brink of collapse and blown a hole in the public finances.
But it swiftly reversed course as the coalition government in Dublin, deeply unpopular after presiding over the implosion of an economy dubbed the "Celtic Tiger" for its double-digit growth in the late 1990s, looked to be facing a struggle to pass an austerity budget that is a condition of the aid.
The single currency was driven back below $1.36 on Tuesday as the Irish turmoil stoked fears that a crisis that has already engulfed Greece will spread to other indebted euro zone nations, with Portugal and Spain in nervous bond investors' sights.
"They've addressed the Greek problem, they're addressing the Irish problem, people are now questioning where is the next one ... the political turmoil in Ireland also doesn't help," said Grant Turley, strategist at ANZ in Sydney.
Asian stock markets fell, following declines on Wall Street the previous day, with MSCI's index of Asia Pacific shares outside Japan <.MIAPJ0000PUS> shedding 1.9 percent. Tokyo markets were closed for a holiday.
Australian shares <.AXJO> lost 1.2 percent to hit a seven-week low. Banks and miners led the retreat, with National Australia Bank down 1.8 percent and BHP Billiton off 1.7 percent.
The biggest stock market falls were in Hong Kong <.HSI> and Shanghai <.SSEC>, down 2.4 percent and 1.9 percent respectively, where investors dumped mining and metals stocks.
Moves by the authorities to cool the property market continued to weigh in Hong Kong, where the property sub-index <.HSNP> fell 3 percent. <.HK> <.SS>
On Monday U.S. financial stocks had slid on fears of exposure to Europe's debt woes and concerns about a broad insider trading probe. The KBW bank index <.KBX> fell 1.5 percent and JPMorgan Chase & Co fell 2.3 percent. <.N>
DOWNSIDE RISK
The euro traded around $1.3555, below Monday's session trough of $1.3574. The single currency had risen as high as $1.3786 on Monday.
"The fact that sentiment turned so quickly, that the Irish government is heading toward an election and that Moody's talked about downgrading Ireland are all not helping," said Greg Gibbs, strategist at RBS.
"It reveals a lack of underlying demand for European sovereign and financial assets and point to the downside risk for the euro."
Against the yen, the euro slipped to around 113.40 from two-week highs near 115.0 yen.
A stronger dollar often weighs on commodity markets, making assets priced in the U.S. currency more expensive for holders of other currencies.
U.S. crude oil futures lost 50 cents, or around 0.6 percent, to trade at $81.24 a barrel, gold fell around 0.5 percent and copper and zinc were also weaker.
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