Shares fall on Korean war and debt fears

(Latest Alternative News) Threat of another war more debt, sending markets on a free fall...

• Tensions between North and South Korea spook markets
• Worries continue over European debt crisis
• US and Asian markets down and Europe's index open lower

Shares around the world tumbled today as a new chill swept through world markets. Investors were rattled by fears of war between North and South Korea, compounded by fresh worries about Europe's debt problems and the shaky euro.

The FTSE 100 index in London plunged more than 130 points when trading began to 4938.53, a fall of 2.56% to an eight-month low. Every share on the blue chip index lost value.

Germany's Dax was down 2.6%, France's CAC dropped 3.2%, while Spain's Ibex lost 3.6%, Portugal's PSI slid 3.1% and Italy's benchmark index 2.6%.

Ben Potter at IG Markets said: "Wall Street collapsed in the final few minutes of trade last night as fears of all-out war on the Korean peninsula combined with concerns that European banks – notably those in Spain – may be staring into something of an abyss.

"Certainly the realisation of two highly significant yet totally unrelated events like this could equate to something akin to financial armageddon and with this in mind, the expectation has to be that traders will remain highly cautious in the near term."

On Wall Street last night, the Dow Jones lost 126.82 points, or 1.2%, to 10,066.57 while the S&P 500 index fell 1.3% to 1,073.65.

Stocks in Asia followed Wall Street lower, with Japan's Nikkei sliding 3.06% to 9,459.89 today. South Korea's benchmark index dropped 2.75%, and the South Korean won slid to its weakest level against the dollar in more than 10 months. North Korean leader Kim Jong Il has reportedly put his military on combat alert, shortly after South Korea officially blamed his regime for the sinking of one of its warships in which 46 sailors died on 26 March.

Hong Kong's Hang Seng index fell 3.13% to 19,050.26 while index in Australia, Singapore and Indonesia all lost more than 2%. Stock markets in China, India, Thailand and Malaysia were down between 1% and 2%.

The European debt crisis saw its latest twist over the weekend when the Bank of Spain stepped in to rescue CajaSur – only the second time that Spain's central bank has saved a regional lender. Investors worry that debt problems in several euro-zone countries could trigger a new banking crisis.

Merkel in the Gulf

German chancellor Angela Merkel said today that the Gulf Arab states back European efforts to stabilize the euro. "There's interest in having a strong Europe, but it's clear we need to work on our competitiveness, and this is exactly the German position too," she said in Abu Dhabi after meeting leaders of the United Arab Emirates on a visit to the Gulf. "It's understood here very well that a region like the European Union which shares a currency also needs to create a shared basis for economic performance."

Asked whether the European currency was still a model for efforts among Gulf states to create their own joint currency, Merkel said "yes, of course", adding that the subject was high on the agenda in her talks.

In the UK, traders are waiting for updated GDP figures for the first quarter of 2010, which are expected to show a small upward revision to 0.3% growth from the initial estimate of 0.2% a month ago.

James Knightley at ING said: "That initial release was based only on around 40% of the data we get in the final report due out next month so with March's industrial production report coming in significantly stronger than the Office for National Statistics had factored we should be looking for an improvement. There is also the possibility that too pessimistic a view was taken on the impact from the volcanic ash cloud and bad weather, which may result in a small bounce-back."