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Asian stocks drop after N.Korea fires missiles

Written by: Staff
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SINGAPORE, July 5 (Reuters) Asian stocks and most regional currencies dropped on Wednesday after North Korea test-fired at least six missiles, including a long-range Taepodong-2, heightening geopolitical risks and unnerving investors.

Stocks in Europe were expected to fall in early trade with bookmakers in London betting on Britain's FTSE 100, France's CAC 40 and Germany's opening 13-20 points lower.

Gold traditionally a haven in times of crisis, rose more than 1 percent to a one-month high of 0.50 an ounce and London Brent crude oil rose 0.7 percent to about .99 per barrel, before giving up some gains.

But Japanese government bonds gave up early gains and the yen erased morning losses on the missile news as investors turned their focus to an expected rise in Bank of Japan policy rates next week, arguing the impact of the North Korean missile tests remained unclear.

''Today's market reaction shows that we're not going to see capital flight right away ... I am encouraged by the lack of a major, knee-jerk reaction sell-off,'' said Kirby Daley, a strategist at Fimat brokerage.

''It's definitely a factor that will cause fund managers to be more cautious in their long-term positions in Asia, especially Japan and South Korea.'' Japan's Nikkei stock average closed 0.7 percent lower at 15,523.94, after earlier falling as much as 1 percent. The index had hit a one-month high on Tuesday.

Consumer finance company Credit Saison slumped 6.3 percent, while automaker Honda Motor Co. lost 2.2 percent and industrial robot maker Fanuc dropped 1.3 percent.

South Korea's key KOSPI slumped as much as 2 percent on news that its neighbour had launched missiles on Wednesday, a move the United States called provocative and in defiance of the international community.

It later recouped much of the losses to stand down 0.5 percent as investors reasoned the impact of the missile test on the economy would be minimal.

Shares in the affiliates of Hyundai Group, a conglomerate spearheading South Korea's business investments in North Korea, also fell in early trade. Hyundai Merchant Marine Co. slumped 3.2 percent while Hyundai Securities lost 3.6 percent.

LIMITED IMPACT ''North Korea's missile launch has undermined stocks across the board, but its impact will be limited to the short term,'' said Joseph Han, an analyst at Daewoo Securities.

Taiwan's benchmark index was off 1.1 percent.

The yen fell to a low of 115.23 per dollar and dropped to a record low of 147.31 per euro dragging other Asian currencies lower.

But it recouped the losses by midday as traders reassessed the impact of the missile tests and focused instead on next week's expected Japanese rate rise, which would be the first in six years.

''Given the fact that Japan is highly unlikely to attack North Korea, the impact of the launch may be only temporary,'' said Masafumi Yamamoto, currency strategist at Nikko Citigroup.

''The market has not yet fully priced in a 25-basis-point rate increase by the BOJ. If the central bank really raises the overnight rate by that much, it should prompt some yen buying.'' Two-year JGB yields surged to 0.895 percent after earlier falling 1.5 basis points to 0.855 percent while 5-year yields soared to 1.50 percent, the highest in the life of the bond, after initially dropping 2.5 basis points to 1.45 percent.

The yield on the 10-year U.S. Treasury was little changed at 5.149 percent.

Although the long-range missile apparently failed about 40 seconds into its test flight, investors are likely to hold off on risky bets before a clearer picture emerged, analysts said.

''The news is negative as it reminds investors, including foreigners, of geopolitical risk, which has been behind the scene for quite some time,'' said Goro Kumagai, senior strategist at Mizuho Securities.

The United Nations' Security Council plans to meet in a closed session later on Wednesday, at Japan's request, to discuss the latest move by the reclusive Stalinist state, a French spokesman said.

The United States said it will discuss prospects for hauling North Korea before the Security Council over its missile firings, a move that could pave the way toward U.N.

sanctions on North Korea.

Shares in Bank of China soared 30 percent in the Shanghai stock market's biggest debut on Wednesday, reflecting the appetite for new shares among Chinese investors. Shanghai's key stock index jumped 2.4 percent.

REUTERS SBA DS1256

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