Fears that the U.S., Britain and other countries are gearing up to confront Syria over its alleged use of chemical weapons against civilians rose after Defence Secretary Chuck Hagel said the U.S. military stands ready to strike against Syria if President Barack Obama gives the order.
"Investors are sort of battening down the hatches a bit. I get the sense that this looks like a situation that is likely to be with us for a while," said Ric Spooner, chief market analyst at CMC Markets in Sydney. "One reason the market has started to fall is that people are thinking this may not be a one-off blip that will only last a week. The stakes have been raised by the use of chemical weapons," he said.
Britain's FTSE 100 fell 0.3 per cent to 6,424.57 in early trading. Germany's DAX shed 0.6 per cent to 8,197.45. France's CAC-40 fell marginally to 3,968.13. Stocks in the U.S. looked set for a slight recovery after sharp losses Tuesday. Dow Jones futures rose 0.2 per cent to 14,785. S&P 500 futures rose 0.2 per cent to 1,631.70.
Gold prices and U.S. government bond prices advanced because traders see those investments holding their value better in times of uncertainty. Assets considered risky even in normal circumstances went into a tailspin. India's rupee reached a new low against the U.S. dollar. One dollar now buys about 68.4 rupees compared with 66.2 rupees only a day earlier. The stock benchmark in the Philippines shed 3 per cent.
Elsewhere in Asia, Japan's Nikkei 225 index sank 1.5 per cent to close at 13,338.46, its lowest finish in two months, as export-linked shares fell sharply. Suzuki Motor Corp. tumbled 5.4 per cent. Sony Corp. dropped 3.4 per cent.
Hong Kong's Hang Seng dropped 1.6 per cent to 21,524.65. South Korea's Kospi declined 0.1 per cent to 1,884.52. Australia's S&P/ASX 200 tumbled 1.1 per cent to 5,087.20. Benchmarks in Thailand, the Philippines and mainland China also fell.
U.S. stocks were hit by a broad sell-off Tuesday. The tensions with Syria overshadowed two positive reports on the economy. The Conference Board said its consumer confidence index rose to 81.5 in August, up from 80.3 the month before and beating expectations. Separately, a survey on home prices showed a strong rise from the year before.
Syria is not a major oil producer, but traders are worried that a showdown with the regime of President Bashar Assad could escalate into a regional conflict that might disrupt the flow of oil from the Middle East. Key Syrian ally Iran is a big oil producer, as is Iraq, a neighbour of both nations.
Benchmark oil for October delivery rose $1.03 to $110.04 a barrel in electronic trading on the New York Mercantile Exchange. The contract jumped $3.09 Tuesday to $109.01 a barrel on the Nymex. That's the highest closing price since February 2012, although oil remains far below its record close of $145.29 a barrel, reached on July 3, 2008.
In currencies, the euro fell to $1.3372 from $1.3388 late Tuesday. The dollar rose slightly to 97.51 yen from 97.07 yen.
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