World stocks fall with Europe debt woes, Korea clash

[November 23, 2010]  LONDON (AP) -- World markets fell sharply Tuesday as investors worried that Ireland's debt crisis will spread to other financially weak European countries and following news that North Korea had fired dozens of artillery rounds into South Korea's territory.

In Europe, the FTSE 100 index of leading British shares was down 35.77 points, or 0.6 percent at 5,645.06 while Germany's DAX fell 16.76 points, or 0.3 percent, to 6,805.29. The CAC-40 in France was 30.16 points, or 0.8 percent, lower at 3,788.73.

Wall Street was also poised to open lower -- Dow futures were down 61 points, or 0.6 percent, at 11,104 while the broader Standard & Poor's 500 futures fell 9.2 points, or 0.8 percent, at 1,188.70.

Initial relief that the Irish government had relented and asked for European Union and International Monetary Fund help to bailout its heavily indebted banks was short-lived. Experts said the bailout, which is expected to amount to around euro90 billion, would do little to shield other heavily indebted countries from a potential collapse in investor confidence.

The overarching worry is that European officials have not done enough to prevent the continent's debt crisis moving on to another highly-indebted country, with Portugal and Spain the considered the next nations most likely to fall, following Greece and Ireland. Spain is the big worry for EU policymakers because it accounts for around 10 percent of the euro-zone economy, in contrast to Greece, Ireland and Portugal, which account for less than 2 percent each.

"Price action in the markets makes it clear that investors believe that the Irish bailout does not resolve the euro zone's problems," said Neil MacKinnon, global macro strategist at VTB Capital.

Investors are also worried that the activation of the bailout will not be as smooth as hoped, especially now that Ireland's premier Brian Cowan has pledged to call elections early next year if an austerity budget is passed. His announcement was triggered by the decision by the Green Party to withdraw its support for the government, even though it pledged to back the 2011 budget, due to be unveiled on Dec. 7.

As if Ireland's debt problems were not enough, investors have had a dose of geopolitical uncertainty to grapple with after North Korea's attack on neighboring South Korea.

The North shot dozens of rounds of artillery onto a populated South Korean island near their disputed border, prompting South Korea to return fire and scramble fighter jets, military officials said.

"North Korea's nuclear arsenal is well known, and with its unpredictable regime, any altercations involving them can only heighten current market jitters," said Phil Gillett, a trader at Spreadex.

The tensions on the Korean peninsula came as Asian trading was drawing to a close -- it had actually ended on South Korea's Kospi, which closed 0.8 percent to 1,928.94.

Elsewhere, Hong Kong's Hang Seng index tumbled 2.7 percent to 22,896.14 and China's Shanghai Composite Index shed 1.9 percent to 2,828.28 with sentiment additionally impacted by mounting expectations Beijing will take more steps to cool inflation that could slow economic growth. Japan's markets were shut for a national holiday.

In the currency markets, the dollar was further buoyed, particularly against the euro, by news of North Korea's attack, as it garnered further support in its status as a supposed safe haven currency.

"Reports of hostilities between North and South and Korea will bolster the dollar further," said Daragh Maher, an analyst at Credit Agricole.

By mid morning London time, the euro was down 0.3 percent at $1.3580 while the dollar was 0.1 percent firmer at 83.36 yen.

Given what's going on in Europe and Asia, the news flow out of the U.S. will likely play second fiddle. However, the latest estimate of how much the U.S. economy grew in the third quarter and existing home sales figures for October have the potential to have a market impact.

In the oil markets, benchmark crude for January delivery was down 28 cents to $81.46 a barrel in electronic trading on the New York Mercantile Exchange.

[Associated Press; By PAN PYLAS]

AP Business Writer Kelvin Chan in Hong Kong contributed to this report.

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