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N.Korea nuke announcement spooks market, oil slumps

(Reuters)
Updated: 2006-10-04 16:54

Singapore - Asian markets were spooked on Wednesday by North Korea's assertion it would conduct its first nuclear test, while energy and commodities stocks fell after oil slumped to a 7-month low.

Tokyo's Nikkei average closed down 0.98 percent on a wave of late selling after the index had spent the morning in positive territory following a record-high close by the blue-chip Dow Jones industrial average.

The MSCI index for Asian stocks outside of Japan was down close to 1 percent at 0636 GMT.
Financial bookmakers were betting Britain's FTSE 100 would open 10-15 points higher after finishing down a day earlier amid falling commodity prices.

The dollar edged towards a 5-month high against the yen and the euro hit a one-month peak against the Japanese currency as investors used a jump in tensions over North Korea as an excuse to sell.

South Korea's key KOSPI index took the heaviest hit among Asia's share markets, ending down 1.62 percent, with heavyweight Samsung Electronics shedding 2.6 percent and steel maker POSCO 1.85 percent lower.

The KOSPI decline was the biggest single-day percentage fall in 11 weeks.

"It's different this time from prior events because North Korea has said they will test a nuclear weapon," said Kim Jeong-hwan, a strategist at Woori Investment and Securities.

"It makes it very hard to predict how events will play out. I wouldn't say this caused shock in the market, but it may be hard to expect a significant rebound," he added.

North Korea's relations with the outside world have become increasingly tense since it test-fired missiles in July.

South Korea has heightened its security alert following its neighbour's announcement on Tuesday and the United States, France and Japan have urged the UN Security Council to respond.

Markets analysts said Tokyo's Nikkei was dragged down more by energy and resources stocks than North Korea's pledge to test a nuclear device.

Oil extended the near 7 percent slide of the previous two days, but gold steadied after falling more than 3 percent on Tuesday. Copper prices also tumbled as a result of oil's decline.

Benchmark US crude, which fell more than $2 on Tuesday, was trading at $58.24 a barrel at 0614 GMT, the lowest since mid-February.

The price of oil has been pressured by ample fuel stocks in top consumer the United States and no evidence that other OPEC members are joining Nigeria and Venezuela in cutting output.

Resources Stocks Fall

In Tokyo, Nippon Oil Corp., Japan's top oil refiner, fell 2.9 percent and oil developer INPEX Holdings Inc. dropped 2.13 percent.

Trading firms that handle natural resources also came under pressure, including Mitsui & Co. Ltd., which sank 5.5 percent, and Mitsubishi Corp., which tumbled 5.6 percent.

In Australia, where the main index fell about 0.80 percent, the country's top independent oil-and-gas company Woodside Petroleum fell 2.85 percent.

The world's top miner, BHP Billiton Ltd./Plc., slumped 4.6 percent while the second-biggest, Rio Tinto Ltd./Plc., fell 2.8 percent.

The Dow's record-breaking rally cheered investors in Hong Kong, where the main index hit six-year highs, before falling with other Asian markets, as resource shares like CNOOC Ltd. lost more than 3 percent.

The dollar rose to around 118.05 yen from around 117.95 in late New York on Tuesday, edging back towards 118.39 traded on Monday, which was it highest level since mid April.
The euro rose to a one-month high around 150.20 yen, in sight of its record high against the Japanese currency of 150.73 traded in late August.

"North Korea's nuclear test talk was taken as an incentive to sell the yen as the yen remains under strong selling pressure on views that Japanese interest rates will stay very low," said a trader at a Japanese bank.

Japanese government bonds eased, with investors taking small profits from the previous day's gains while keeping a wary eye on stocks.

The benchmark 10-year JGB yield rose 0.5 basis point to 1.700 percent, inching closer to 1.740 percent hit on Monday, its highest level in more than three weeks.

Spot gold was at $576.75/577.50 an ounce, little changed from late trade in New York.