World markets shaken by N. Korea's missile tests

[May 26, 2009]  LONDON (AP) -- World stocks fell Tuesday as North Korea test-fired two missiles just a day after its nuclear test, increasing uncertainty among investors already worried that the recent rally in equity markets may be overdone.

European indexes followed Asian markets lower, with trading gaining momentum as Britain and the U.S. come back from a long weekend.

In European morning trading Germany's DAX 30 was 1.6 percent lower at 4,842.35 and Britain's FTSE 100 was down 0.8 percent at 4,329.09. France's CAC 40 fell 1.4 percent at 3,190.40.

In Asia, South Korea's market led the region's losses with a 2 percent decline.

Geopolitical tensions in Asia echoed through financial markets as North Korea, defying international criticism, followed up Monday's test of a nuclear bomb by firing two short-range missiles from its east coast.

The move came after the U.N. Security Council condemned the country's nuclear test as a "clear violation" of international bans.

Mitul Kotecha, head of global forex strategy at Calyon, said the news of the missile tests "reverberated through markets overnight." Although its impact has been relatively limited so far, "reports that North Korea is preparing to launch more missiles over coming days may keep markets nervous," he said.

Beyond the geopolitical incident, the market selloff was also due to investors taking a breather from the weeks-long rally which had been fueled by hopes that the worst of the economic recession is past.

With more downbeat economic news in recent days -- including fears of credit ratings downgrades on major economies like the U.S. and U.K. -- traders' optimism has become clouded and markets have been looking for direction.

"We seem to be stuck at the current levels," said Winson Fong, managing director at SG Asset Management in Hong Kong, which oversees about $2 billion in equities in Asia. "The market has rebounded so much we're going to need major good news to go higher or major bad news to persuade people to take some profits."

The most prominent victim of the credit ratings fears for the U.S. has been the dollar, which has slumped in value, particularly against the pound and euro, hurting prospects for European company profits.

After jumping from $1.34 in mid-May to above $1.40 on Monday, the euro traded at $1.3920 on Tuesday. During the same period, the pound rose from $1.51 to $1.5834 on Tuesday after trading at $1.571 on Monday. The dollar rose somewhat against the yen, however, to 95.04 yen from 94.84 on Monday.

In Germany, consumer confidence figures failed to boost markets. The GfK research group said its forward-looking consumer climate index for June remained at 2.5 points, unchanged from May and April levels, as anxiety over job security weighed on broader hopes that the economy may be improving.

Wall Street was expected to open somewhat lower. Dow futures were down 12 points at 8,248 and Standard & Poor's 500 futures fell 4.3 points to 884.50.

Looking ahead, markets were awaiting key U.S. economic reports due this week -- including home sales, big-ticket manufactured goods and consumer confidence.

In Asia, Japan's Nikkei 225 stock average fell 36.19 points, or 0.4 percent, to 9,310.81, while Hong Kong's Hang Seng lost 130.26 points, or 0.8 percent, to 16,991.56 in an erratic session.

In South Korea, the Kospi shed 2.1 percent at 1,372.04. The benchmark dived over 6 percent Monday on news of North Korea's nuclear test before recovering nearly all its losses.

Shanghai's index lost 0.8 percent, while Taiwan and Singapore markets dropped almost 1 percent and India's Sensex fell 1.5 percent. The only major gainer was Australia, where the key index rose 1.4 percent.

Oil prices fell in European trade ahead of OPEC's meeting this week, with benchmark crude for July delivery trading at $59.69 a barrel, down $1.98 from overnight trade.

[Associated Press; By CARLO PIOVANO]

Associated Press writer Jeremiah Marquez in Hong Kong contributed to this report.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.