GLOBAL MARKETS-Dollar up, stocks swoon as war seen weeks away
www.forbes.com Reuters, 01.30.03, 9:52 PM ET India Australia By Bill Tarrant
SINGAPORE, Jan 31 (Reuters) - The dollar rose and Asian stocks fell on Friday following a mauling on Wall Street, while gold, oil and bonds were firm after U.S. President George W. Bush said he would give diplomacy just weeks to avert a war with Iraq.
The dollar drew comfort from an open letter published in several newspapers by the leaders of eight European nations that called on others -- implicitly France, Germany and Russia -- to support Bush's attempts to disarm Iraq. The letter raised the possibility that the United States would not go to war alone.
Japanese stocks sliced through a two-decade low on Friday, after U.S. stocks fell two percent overnight, as AOL Time Warner Inc's (nyse: AOL - news - people) massive loss compounded economic and war worries.
Crude futures eased in electronic trading in Asia after rising for a third day in New York amid growing worries that war with Iraq could erupt within weeks and disrupt supplies.
A report showing U.S. economic growth had stalled in the final quarter of 2002 hit stocks in the world's biggest economy and added fuel to a rally in U.S. Treasuries.
"It's still unclear when the attack on Iraq will begin and these worries are the biggest factor dragging down stocks globally as well as in Japan," said Tetsuya Ishijima, strategist at Okasan Securities.
"What stock markets hate more than anything is uncertainty." Bush on Thursday welcomed the idea of exile for Iraqi President Saddam Hussein and said he would give diplomacy "weeks not months" to end the showdown over disarming Baghdad.
Chief weapons inspector Hans Blix said U.N. investigators had seen no sign of increased cooperation from Iraq since they had handed in their report to the Security Council on Monday.
The Nikkei average <.N225> was down 0.66 percent at 8,262.26 as of 0240 GMT, after falling under a two-decade closing low that it had hit in November. The broader TOPIX index <.TOPX> was down 0.91 percent at 817.68.
Other key Asia-Pacific markets were down as well, with trading thinned as many countries in the region began celebrating the oriental Lunar New Year.
Australian shares <.AXJO> fell 0.7 percent, down for a third straight day, with News Corp <NCP.AX> off 2.9 percent following the drubbing that AOL Time Warner took.
Markets in Hong Kong, Taiwan, China, South Korea and Malaysia were shut and Singapore wwas to close after the morning session.
The blue-chip Dow Jones Industrial average <.DJI> fell 2.04 percent to 7,945, finishing below the key psychological 8,000 level for the second time this week. The Standard & Poor's 500 index <.SPX> fell 2.29 percent to 844.57. The tech-loaded Nasdaq Composite <.IXIC> ended down 2.65 percent at 1,322.11.
U.S. investors have yet to see solid evidence of a healthy recovery in corporate profits at the height of the fourth-quarter reporting season. AOL Time Warner's stock fell 14 percent after the company posted a 2002 net loss of nearly $100 billion -- the largest in U.S. corporate history.
Gross domestic product, a broad measure of economic activity within U.S. borders, crept ahead at a 0.7 percent annual rate in the October-December quarter, well off the 4 percent of the prior quarter but in line with expectations.
Front-month March crude
Traders said U.S. Secretary of State Colin Powell's briefing to the U.N. Security Council next Wednesday could give the United States more ammunition to justify military action soon.
Venezuela's two-month oil strike seemed to falter as the government said output was now up to 1.4 million barrels per day (bpd), recovering steadily from lows of 150,000 bpd in December.
Currency traders said the market would look ahead to Bush's meeting with British Prime Minister Tony Blair later in the day to see if any timeframe emerged for a possible attack.
As of 0220 GMT, the dollar was at 119.18 yen <JPY=> compared with 119.02 in late U.S. trade. The euro was at $1.0812 <EUR=> against 1.0815 and 128.67 yen <EURJPY=R> versus 128.71.
The euro withstood comments from European central bank council member Ernst Welteke, who reiterated on Thursday the pace of the euro's rise, if maintained, could hamper euro zone growth.
Spot Gold <XAU=> was trading around $368.75 an ounce in Asia after closing $2.30 higher at $369.70 an ounce in New York.
The U.S. 30-year bond <US30YT=RR> rallied 27/32 higher to 107-28/32 to yield 4.9 percent. Two-year notes rose 5/32 to 99-28/32 and were yielding 1.68 percent.