Korea crisis shakes Asian markets

Tokyo's Nikkei Index ended the session down 0.84 per cent, or 85.08 points, at 10,030.11 after falling sharply on opening, while Sydney's S&P/ASX 200 index fell 0.09 per cent, or 4.4 points, to 4,584.7.

Seoul's Kospi index shed 0.15 per cent, or 2.96 points, at 1,925.98, after initially falling 2.33 per cent in its first reaction to Tuesday's outbreak of artillery fire on the border with North Korea.

Hong Kong's Hang Seng was up 0.69 per cent by lunch while Shanghai's Composite index rose 0.75 per cent.

The Korean standoff added to negative sentiment caused by the eurozone debt crisis, expectations of further measures by China to cool its economy and a US Federal Reserve forecast of much slower growth next year than previously expected.

In Tokyo, stocks in companies with exposure to the troubled eurozone such as Sony, Nikon and Mazda noticeably suffered.

But Lee Sang-won at Hyundai Securities in Seoul said nerves were starting to calm.

"Investors have learned from the past that financial risks generated by South-North Korea tensions haven't lasted for long," Lee told Dow Jones Newswires.

In a similar vein, Jacky Zhang, analyst at Capital Financial Management in Shanghai, said: "The likelihood that tensions in Korea will expand to a full-blown war is very low."

Traders were mostly guarded however about the comeback by Hong Kong and Shanghai, which followed a 2.67 per cent plunge on Tuesday.

"Today's rebound is mostly a technical recovery as the central government will continue to launch tightening measures in the future to combat inflation," said China Dragon Securities analyst Guan Yewen.

Trading in New Zealand Oil and Gas was suspended after police said 29 people caught in a disaster at the Pike River mine were likely dead. New Zealand Oil and Gas holds almost a one-third stake in the mine.

US stocks closed sharply lower on Tuesday following the warning from the Federal Reserve and declines in Europe, weighed notably by energy stocks such as Chevron and Exxon Mobil.

The blue-chip Dow Jones Industrial Average slipped 1.27 per cent, the broader S&P 500 index fell 1.43 per cent and the tech-rich Nasdaq lost 1.46 per cent.

The euro edged higher in Asian trade despite Standard & Poor's move to lower its credit ratings for Ireland.

The single European currency edged up from Tuesday's two-month lows to $1.3401, compared with $1.3364 in New York, with the Irish downgrade already priced in, according to analysts.

The euro bought 111.55 yen, compared with 111.17 in New York.

The safe-haven greenback rose against the yen, standing at 83.29 compared with 83.16 yen in New York, benefitting from the erosion of risk appetite.

The Korean won fell to 1,147.38 against the dollar, from 1,129.80 in New York overnight.

Crude prices rebounded slightly, mirroring the small hop in the euro's value.

New York's main contract, light sweet crude for January delivery, gained 43 cents to $81.68. Brent North Sea crude for January added 31 cents to $83.56.

Gold opened at $1,375.00-1,376.00 an ounce in Hong Kong, up from Tuesday's close of $1,363.00-1,364.00.

In other markets:

-- Manila fell 0.55 per cent, or 22.81 points, to 4,124.54.

Top-traded SM Investments fell 2.35 per cent to 498 pesos, while Philippine Long Distance Telephone shed 0.98 per cent to 2,424 pesos. Cebu Air dropped 1.41 per cent to 125.50 pesos.

-- Wellington rose 0.32 per cent, or 10.45 points, to 3,269.21.

-- Taipei fell 0.38 per cent, or 31.58 points, to 8,297.05.

Taiwan Semiconductor Manufacturing Company fell 0.32 per cent to 63.2 Taiwan dollars, while computer maker Acer dropped 0.22 per cent to 89.6.