Tokyo: Asian stocks fell, with Korean shares tumbling as much as 5%, US index futures extended losses and the dollar rose after North Korean television announced on Monday the death of leader Kim Jong-il.
The Korean won fell 1.8% on the news, announced at 08:30 am has long been feared by financial markets for the instability a leadership transition in the unpredictable North could bring to the wider region.
The dollar rose 0.5% against the yen and S&P 500 futures fell 0.5%.
MSCI’s broadest index of Asia Pacific shares outside Japan, which had been down around 1.9% before the announcement, fell as far as 2.6%, and was last trading about 2.4% lower.
“The risk or fear that the death of Kim Jong-Il will lead to provocation by North Korea is pressuring selling,” said Hiroyuki Fukunaga, CEO of Investrust, in Tokyo. “This might be a temporary fall depending on what happens next. Right now, there’s going to be a sell-off as part of a risk-off.”
Tokyo’s Nikkei share average, which was closed for the mid-session break at the time, was down 0.8%.
The euro, meanwhile, fell on fears possible credit ratings downgrades of several European countries could derail progress towards resolving the euro zone’s debt crisis.
Fitch Ratings warned on Friday it may downgrade France and six other euro zone countries, saying a comprehensive solution to the region’s debt crisis was “technically and politically beyond reach”.
Fitch revised the outlook on France’s top-notch rating to negative, saying the downgrade was not imminent but could come in two years. For Belgium, Cyprus, Ireland, Italy, Slovenia and Spain, a downgrade could come much sooner, as those nations were placed on credit watch negative, which traditionally signals the possibility of a downgrade within three months at most.
While credit downgrades are anticipated, thinning activity ahead of the Christmas holidays and concerns about the European debt woes dragging global growth hepled aggravate price moves.
“The underlying reason is the euro zone debt crisis, but sentiment is more negative in Asia, while US equities were mixed, with concerns about the regional growth outlook,” said Frances Cheung, a strategist at Credit Agricole CIB in Hong Kong.
The Asian Development Bank trimmed most of its 2011 and 2012 growth forecasts for the region while many of Asia’s central banks have paused their rate-hiking cycles due to growing global uncertainties.
The euro fell 0.3% to $1.3004 on Monday, off an 11-month low of $1.2944 hit last week.
Prospects of slowing economic growth worldwide weighed on industrial metals such as copper and oil, with three-month copper on the London Metal Exchange losing more than 1% to $7264 a tonne. Brent crude was down 0.4%, falling below $103 a barrel on Monday.
“The market is still concerned that what’s going on in Europe will spread to China, the biggest centre for oil demand growth,” said Gordon Kwan, head of energy research at Mirae Asset Management in Hong Kong.
China pledged to guarantee growth in the face of an “extremely grim” outlook for the global economy in 2012, rounding off its annual policy-setting conference last week with a series of commitments to deliver economic stability in the world’s second-biggest economy.
European policy makers made some progress in pursuing fiscal consolidation in Europe at a key summit meeting earlier in the month, but failed to nail down a convincing commitment for a crucial bailout scheme, prompting rating agencies to respond negatively.
Markets will wait for the outcome of a finance ministers’ teleconference from 08:00 m on Monday.
European Union officials said euro zone finance ministers will discuss the draft text of the new euro zone fiscal compact so that it can be finalized by the end of January. They will also consider the size of individual bilateral loans to the International Monetary Fund (IMF).