Asian shares fell and oil prices rose yesterday as investors fretted that US-led strikes against Afghan-istan might prove the opening shots of a drawn-out war with unfathomable consequences for markets and governments alike.
But equities recovered from their weakest levels, and oil fell from its early highs, as unsettled traders waited for Wall Street's first reaction to the long-awaited military retaliation for last month's deadly strikes against the US.
"There's no panic in the markets. The bombing is expected," said Foong Hock Meng, managing director in Singapore of Pictet Asia Pte Ltd, an arm of Switzerland's Pictet & Cie Bankers, which manages more than US$80 billion in assets globally.
European shares were expected to open around two percent lower -- in line with the performance of Asian markets.
The traditional safe havens of gold and the Swiss franc rose slightly, as did short-dated bonds in some markets, but the foreign exchange markets were generally quiet in the absence of Tokyo, which was closed for a national holiday.
"It is not such a shockingly unexpected event that it will put markets into disarray, but how it unfolds over the next few days will be key," said Anthony Karydakis, senior financial economist at Banc One Capital Markets in Chicago.
"We're fearing more terrorist attacks. We're not sure how this is going to play out or how quickly this is going to get resolved. If it drags, the risk increases," said Edison Yap, a fund manager of Equitable-PCI Bank Trust in Manila, where shares fell 3.65 percent.
Hong Kong's Hang Seng Index was down 2.73 percent at 9,996.92, above its low of 9,904.93, while Singapore's Straits Times Index shed 1.94 percent to 1,358.38 but was up from its low of 1,339.09.
Despite the initial sell-off, some brokers said the use of force against Afghanistan had at least ended a tense, uncertain wait since the Sept. 11 attacks.
The dollar dipped below ?120 to ?119.90 about 2/3 of a yen below New York's close on Friday, although dealers said the move was largely a mark-down, driven by anticipation that Japanese investors will repatriate funds.
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