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War fears send Asia tumbling

Nothing to cheer about: Nikkei suffers war jitters.
Nothing to cheer about: Nikkei suffers war jitters.

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TOKYO, Japan -- Tokyo's Nikkei average closed slightly above a 20-year low on Monday as several blue-chip exporters, such as Canon, were sold by investors bracing for what looks like an imminent war in Iraq.

Mizuho Financial Group and other banks were also among the hardest hit due to concerns that a vicious cycle of share selling ahead of the critical fiscal year-end in Japan could destabilize the nation's banking system.

The Nikkei average finished down 1.64 percent or 131.05 points at 7,871.64, flirting with its 20-year closing low of 7,862.43 marked only last Tuesday.

The TOPIX index of all first-section issues lost 1.13 percent to 777.21.

War fears took a toll throughout Asia with South Korea's KOSPI hardest hit, falling 4.17 percent to 515.24.

Selling was still the order of the day in Hong Kong and Singapore, with the former dropping 1.7 percent to 8804.16 and the Straits Times index faring a little better, losing 1.3 percent to 1234.42.

In Australia, the all ordinaries lost 13.2 points to 2711.0, after falls were recorded by blue chip giants such as National Australia Bank, News Corp. and BHP Billiton.

The Australian dollar broke through the $US0.60c barrier, more than half a U.S. cent higher than its Friday's close.

U.S. President George W. Bush said on Sunday that the U.N. Security Council must agree on Monday on a new resolution authorizing war against Iraq, and left no doubt the United States and its like-minded allies would otherwise invade Iraq without U.N. backing.

"What makes us worried the most is a possible negative impact on the U.S. economy from this Iraq issue -- the economy Japan is largely dependent on," said Hiroshi Nishida, general manager at Mitsubishi Trust Asset Management.

After Bush's ultimatum, oil prices rose and Nasdaq futures on Globex fell 1.59 percent in late Asian hours, the latter suggesting a weaker opening on Wall Street.

The dollar fell to 117.82 yen in Asian trade compared with 118.30 in late New York on Friday. A stronger yen cuts into the value of exporters' profits earned abroad.

There is an optimistic view that global markets will bounce back from recent losses once a war starts, but many investors in Japan are cautious.

"Japanese stocks have been on a downtrend due to Japan's own internal problems, which include an unhealthy financial system and an inability to implement deregulation," said Jun Terasaka, a senior fund manager at Toyota Asset Management.

"I don't even think Japanese stocks would show much of a reaction to a quick end to the war."

Reflecting these concerns, chip equipment giant Tokyo Electron Ltd gave up five percent to 4,670 yen and Canon, the world's largest office machine maker and another major exporter, fell 0.95 percent to 4,150.

Trading activity slumped, with 433.63 billion yen worth of shares traded on the first section, the lowest total in three weeks. Decliners outnumbered advancers 1,029 to 374.

A few bright spots were found among defensives as investors, unsure of the impact of a war in Iraq on the global economy, sought out safe-haven shares.

Takeda Chemical Industries Ltd, Japan's largest drugmaker, firmed 0.46 percent to 4,370 yen.

Kao Corp was up 0.64 percent at 2,360 yen. Japan's leading household products maker said after the market closed that it would buy the fragrance division of Germany's Cognis chemicals group.

Reuters contributed to this report.

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