India-Pakistan tensions spread from Asia to European markets

[February 27, 2019]  By Julien Ponthus

LONDON (Reuters) - European stock markets opened lower on Wednesday after fresh hostilities erupted between India and Pakistan, causing Asian assets to fall and pushing investors into safe havens such as the yen.

After about an hour of trading, the pan-European STOXX 600 was down about 0.5 percent. All the main regional indexes were in the red. [.EU] U.S. stock futures for the S&P 500 were down 0.1 percent.

Earlier, Pakistan said it had carried out air strikes in Indian-controlled Kashmir and shot down two Indian jets in its own airspace.

Indian and Pakistan bonds and currencies fell and MSCI's broadest index of Asia-Pacific shares outside Japan was last down 0.15 percent as the threat of conflict between the nuclear-armed neighbors grew.

"This adds another layer of risks for investors", said Charles St-Arnaud, a strategist at Lombard Odier, although he noted the market moves remained limited for now.

Markets were watching the U.S.-North Korean summit, which begins in Hanoi later on Wednesday. U.S. President Donald Trump will meet North Korean leader Kim Jong Un for their second summit, with the United States pushing North Korea to dismantle its nuclear weapons program.

The heightened geopolitical risks helped assets considered safer than stocks, such as the Japanese yen, which gained against the dollar.

The dollar itself hovered around a three-week lows after Federal Reserve Chairman Jerome Powell reiterated on Tuesday the Fed had shifted to a more "patient" policy approach regarding changes to interest rates.

The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, February 26, 2019. REUTERS/Staff

"We didn't learn much new," St-Arnaud said. The new dovish stance of U.S. monetary policy had not weakened the dollar much, notably against the euro.

Also in the currency market, the British pound continued to rise after Prime Minister Theresa May offered lawmakers a chance to vote on delaying Brexit.

Sterling last traded at $1.3274, having risen to $1.3288 on Tuesday, its highest levels in five months.

Oil prices rose after a report that U.S. crude inventories had declined and as producer club OPEC seemed to stick to its supply cuts despite pressure from U.S. President Donald Trump.

International Brent crude futures LCOc1 were at $65.32 per barrel, up 0.11 cents, or 0.21 percent from their last close.

Gold was down 0.17 percent at $1,326.24.

(Reporting by Julien Ponthus in London, additional reporting by Daniel Leussink and Tomo Uetake; editing by Larry King)

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