PARIS – European markets edged tentatively higher Monday, stabilizing after losses in Asia, as investors weighed the potential consequences of the death of North Korea’s absolute ruler, Kim Jong Il.

Markets’ first reaction was to drop on the news of Kim Jong Il’s death, which analysts warned could cause an uncertain power transition and put the brakes on talks aimed at getting the secretive communist state to give up its nuclear weapons.

Kim Jong Un, the supreme leader’s untested third son and heir-apparent, is expected to want to consolidate his power and dispel any notions of weakness.

Even before Kim’s death, the United States and others have said they viewed the power transition as a dangerous time — when the ascendant Kim Jong Un could seek to demonstrate his leadership credentials through martial and provocative actions, such as a military attack on South Korea or a nuclear test.

“The most likely scenario for regime collapse has been the sudden death of Kim (Jong Il). We are now in that scenario,” said Victor Cha, a former U.S. National Security Council director for Asian affairs.

But after Asian indexes closed lower, European stocks recovered their poise. Germany’s DAX rose 0.7 percent to 5,741 and Paris’ CAC 40 index rose 0.2 percent to 2,979. Britain’s FTSE gained 0.3 percent to 5,405.40.

Wall Street was set to open higher, with Dow futures up 0.5 percent at 11,831 and the broader S&P 500 futures up 0.6 percent at 1,218.20.

Overnight South Korea’s Kospi index dived nearly 5 percent but later recouped some losses to close 3.4 percent lower at 1,776.93. The Korean won also fell, losing 1.6 percent against the U.S. dollar, a traditional haven in times of uncertainty. The Japanese yen and other regional currencies also weakened against the dollar.

The euro was flat around $1.3030.

Kim’s death overshadowed what already was a gloomy start to the week after Fitch warned after the market close on Friday that it may downgrade the credit ratings of heavyweights Italy and Spain, as well as Belgium, Cyprus, Ireland and Slovenia.

EU finance ministers will later Monday discuss how much money their countries will lend to the International Monetary Fund in a conference call.

The ministers will seek to decide how to split up the euro200 billion ($261 billion) EU leaders promised to send to the IMF at a summit 10 days ago.

The money is meant to boost the eurozone’s firewall against the escalating debt crisis.

There were some doubts whether the EU would reach the euro200 billion after several non-eurozone countries balked at having to support the currency union.

The ministers will also discuss in their conference call a new treaty to tighten fiscal discipline, a spokesman for the Polish delegation to the European said.

Over the coming days, investors will remain alert to developments in North Korea’s power transition.

Kim Jong Il’s death, announced Monday by North Korean state television, raises the specter of more instability on the divided Korean peninsula.

Those worries are most acute in South Korea and Japan, which have often been the targets of North Korea’s mercurial military and diplomatic actions.

“We’re seeing deeper negative sentiment in some markets,” said Dariusz Kowalczyk, strategist at Credit Agricole CIB, in Hong Kong. “Basically this is because risk aversion on the geopolitical front has increased given that there’s a transition of power in a relatively unstable country. So we’re seeing an impact on equities, currencies.”

South Korea’s military and police went on alert and President Lee Myung-bak, convened a national security council meeting. Japanese leaders said they were watching markets closely and in contact with the U.S., Kyodo News Agency reported.

Kim was ailing after suffering what is thought to have been a stroke in 2008 and died at age 69 on Saturday.

North Korea’s official Korean Central News Agency identified his third son, the twenty-something Kim Jong Un, as the “great successor” to the man known officially as the “Dear Leader.”

But even with the younger Kim designated as his father’s successor, and already filling high-ranking posts, some experts fear a behind-the-scenes power struggle or nuclear instability.

Fitch Ratings said it did not view Kim’s death “as a trigger for negative action on South Korea’s sovereign ratings in itself.”

“For now, it’s much too early to say risks have materially increased, but clearly we will keep the situation under close review,” said Andrew Colquhoun, head of Fitch’s Asia-Pacific sovereigns.

Markets in Taiwan, Singapore, Australia, New Zealand and Indonesia also sank on Monday.

Still, barring unexpected developments in Pyongyang the impact of Kim’s death on markets is likely to be passing, analysts said.

“In the short term there will be some psychological uncertainty but I think things will go back to the fundamentals,” said Steven Leung, director of institutional sales at UOB-Kay Hian Ltd. in Hong Kong.

Benchmark oil for January delivery was up 51 cents at $94.04 a barrel in electronic trading on the New York Mercantile Exchange.

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Elaine Kurtenbach in Shanghai and Kelvin Chan in Hong Kong contributed.

SHANGHAI – Asian stocks sank Monday as the death of North Korea’s absolute ruler, Kim Jong Il, added to the uncertainties dogging financial markets.

South Korea’s Kospi index dived 4.1 percent but later recouped some losses to trade 3.4 percent lower at 1,777.64 by early afternoon. The Korean won fell 1.6 percent against the U.S. dollar, a traditional haven in times of uncertainty. The Japanese yen and euro also weakened against the dollar.

Japan’s Nikkei 225 index was down 1.1 percent at 8,308.42, Hong Kong’s Hang Seng slid 2.2 percent to 17,890.13 and the Shanghai Composite Index fell 1.6 percent to 2,188.39.

Kim Jong Il’s death was announced Monday by state television from the North Korean capital, Pyongyang. It raises the possibility of increased instability on the divided Korean peninsula as the reclusive regime undergoes a leadership succession.

Those worries are most acute in South Korea and Japan, which have often been the targets of North Korea’s mercurial military and diplomatic actions.

“We’re seeing deeper negative sentiment in some markets,” said Dariusz Kowalczyk, strategist at Credit Agricole CIB. “Basically this is because risk aversion on the geopolitical front has increased given that there’s a transition of power in a relatively unstable country. So we’re seeing an impact on equities, currencies.”

South Korea put its military and police on alert and its president, Lee Myung-bak, convened a national security council meeting. In Tokyo, Japanese leaders said they were watching markets closely and in contact with the U.S., Kyodo News Agency reported.

“We need to prepare for any contingencies,” Kyodo quoted Jun Azumi, the Japanese finance minister, as saying.

Kim, who had been ailing after suffering what is thought to have been a stroke in 2008, died at age 69 on Saturday.

Kim had presented his third son, the twenty-something Kim Jong Un, as his hereditary successor, putting him in high-ranking posts. But even with an heir apparent, some North Korean observers fear a behind-the-scenes power struggle or nuclear instability.

Fitch Ratings, which spooked markets across the globe with a warning Friday it may downgrade ratings of a half-dozen European countries, said it did not view Kim’s death “as a trigger for negative action on South Korea’s sovereign ratings in itself.”

“For now, it’s much too early to say risks have materially increased, but clearly we will keep the situation under close review,” said Andrew Colquhoun, head of Fitch’s Asia-Pacific sovereigns.

But the news also sent markets in Taiwan, Singapore, Australia, New Zealand and Indonesia sinking.

“Particularly with the bearish market sentiment now, any negative news will make the market much more gloomy,” said Kwong Man Bun, chief operating officer at KGI Securities in Hong Kong. The Hong Kong benchmark dipped 100 points after the news hit which “reflects concern over potential political instability,” he said.

Barring unexpected developments in Pyongyang, analysts said the impact of Kim’s death on markets is likely to be passing.

“In the short term there will be some psychological uncertainty but I think things will go back to the fundamentals,” said Steven Leung, director of institutional sales at UOB-Kay Hian Ltd. in Hong Kong.

Kim’s death overshadowed what already was a gloomy start to the week as jitters about Europe’s debt crisis weighed on sentiment, especially after Fitch warned it may downgrade the credit ratings of heavyweights Italy and Spain, as well as Belgium, Cyprus, Ireland and Slovenia.

Meanwhile, Moody’s Investors Services downgraded Belgium’s credit rating and Ireland released data showing its economy is in worse shape than expected, with third-quarter GDP shrinking 1.9 percent.

Coming just a week after EU leaders struck a deal they thought would contain the continent’s debt crisis, the onslaught of negative news shredded hopes of a lasting solution to the turmoil that is endangering the euro — the currency used by 17 European nations — and threatening the entire global economy.

“Everyone is waiting to see what comes from the next conference of European nations. Hopefully something good,” said Jackson Wong of Tanrich Securities, in Hong Kong.

Chinese markets fell Monday after rebounding at the end of last week on speculation that the government might further ease reserve requirements for banks to help increase the amount of money available for lending to support growth.

“Everything came up empty” over the weekend, Wong said. “We are giving back the gains we had Friday.”

Benchmark oil for January delivery was down 86 cents at $92.72 a barrel in electronic trading on the New York Mercantile Exchange.

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Business Writer Kelvin Chan in Hong Kong contributed.

SHANGHAI – Asian stocks tumbled Monday as the death of the unpredictable leader of nuclear-armed North Korea, Kim Jong Il, added to uncertainties already dogging financial markets.

South Korea’s Kospi index dived 4.1 percent but later recouped some losses to trade 3.1 percent lower at 1,782.50 by early afternoon. The Korean won fell 1.6 percent against the U.S. dollar, a traditional haven in times of uncertainty. The Japanese yen and euro also weakened against the dollar.

Japan’s Nikkei 225 index was down 1 percent at 8,314.44, Hong Kong’s Hang Seng slid 2.5 percent to 17,833.42 and the Shanghai Composite Index fell 2.6 percent to 2,167.68.

Kim Jong Il’s death was announced Monday by state television from the North Korean capital, Pyongyang. It raises the possibility of increased instability on the divided Korean peninsula as the reclusive regime undergoes a leadership succession.

Those worries are most acute in South Korea and Japan, which have often born the brunt of North Korea’s mercurial military and diplomatic actions.

South Korea put its military and police on alert and its president, Lee Myung-bak, convened a national security council meeting. In Tokyo, Japanese leaders said they were watching markets closely and in contact with the U.S., Kyodo News Agency reported.

“We need to prepare for any contingencies,” Kyodo quoted Jun Azumi, the Japanese finance minister, as saying.

Kim, who had been ailing after suffering what is thought to have been a stroke in 2008, died at age 69 on Saturday.

Kim had presented his third son, the twenty-something Kim Jong Un, as his hereditary successor, putting him in high-ranking posts. But even with an heir apparent, some North Korean observers fear a behind-the-scenes power struggle or nuclear instability.

Markets in Taiwan, Singapore, Australia, New Zealand and Indonesia also fell.

“Particularly with the bearish market sentiment now, any negative news will make the market much more gloomy,” said Kwong Man Bun, chief operating officer at KGI Securities in Hong Kong. The Hong Kong benchmark dipped 100 points after the news hit which “reflects concern over potential political instability,” he said.

Kim’s death overshadowed what already was a gloomy start to the week as jitters about Europe’s debt crisis weighed on sentiment. Fitch Ratings said late last week it could downgrade the credit ratings of six European countries — heavyweights Italy and Spain, as well as Belgium, Cyprus, Ireland and Slovenia.

Meanwhile, Moody’s Investors Services downgraded Belgium’s credit rating and Ireland released data showing its economy is in worse shape than expected, with third-quarter GDP shrinking 1.9 percent.

Coming just a week after EU leaders struck a deal they thought would contain the continent’s debt crisis, the onslaught of negative news shredded hopes of a lasting solution to the turmoil that is endangering the euro — the currency used by 17 European nations — and threatening the entire global economy.

“Everyone is waiting to see what comes from the next conference of European nations. Hopefully something good,” said Jackson Wong of Tanrich Securities, in Hong Kong.

Chinese markets fell Monday after rebounding at the end of last week on speculation that the government might further ease reserve requirements for banks to help increase the amount of money available for lending to support growth.

“Everything came up empty” over the weekend, Wong said. “We are giving back the gains we had Friday.”

Benchmark oil for January delivery was down 86 cents at $92.72 a barrel in electronic trading on the New York Mercantile Exchange.

LONDON – Global stock markets rose Tuesday amid signs of easing tensions on the Korean peninsula but the euro dropped after Portugal became the latest European country to be warned of a possible credit rating downgrade.

The FTSE 100 index of leading British shares was up 45.55 points, or 0.8 percent, at 5,937.16 while Germany’s DAX rose 42.56 points, or 0.6 percent, to 7,061.16. The CAC-40 in France was 23.83 points, or 0.6 percent, higher at 3,908.92.

Wall Street was poised for modest gains at the open later — Dow futures were up 36 points, or 0.3 percent, at 11,440 while the broader Standard & Poor’s 500 futures rose 4.6 points, or 0.4 percent, to 1,245.80.

Scarce economic data and severe winter weather in Europe ahead of the Christmas break are keeping trading volumes low. But investors have been watching North Korea’s apparent decision to avoid confrontation with South Korea despite accusing it of being “reckless” with its military drills.

That has helped shore up investors’ appetite for risk — when geopolitical worries are on the rise, investors look for safe havens to park their cash. The dollar, the Swiss franc, bonds and gold are widely perceived to be safer assets than, say, the euro or stocks.

“The easing of tension on the Korean peninsula has helped support risk assets,” said Jane Foley, an analyst at Rabobank International.

The euro initially garnered support from the easing of tension on the Korean peninsula but early gains were mostly wiped out after Moody’s Investor Services warned Portugal could have its A1 rating reduced. It cited uncertainties over its “longer-term economic vitality” and concerns over the country’s ability to access capital markets “at a sustainable price.”

By late morning London time, the euro was up 0.2 percent on the day at $1.3151. Just before the Moody’s warning, it had been trading as high as $1.32.

Portugal is widely thought to be the most financially imperiled eurozone country now that Ireland and Greece have been bailed out by their partners in the single currency bloc and the International Monetary Fund.

Though concerns that Europe’s debt crisis will claim another victim have diminished over the past few weeks, following the bailout of Ireland and news that the European Central Bank has been more active supporting bond markets, the ratings agencies continue to voice their worries. Portugal, Spain and Greece have been all been warned by Moody’s that they could have their ratings cut, while Ireland’s had its slashed by a massive five notches. Even Belgium was dragged into the spotlight when rival agency Standard & Poor’s warned about its debt.

“Credit rating agencies are, as usual, way ‘behind the curve’ but are responding to jittery bond markets,” said Jeremy Batstone-Carr, director of private client research at Charles Stanley. “Regional yield curves, already steep, have steepened yet further in recent days, while the banking sector appears vulnerable to falling bond prices and deteriorating credit conditions.”

Earlier in Asia, Japan’s Nikkei 225 stock average closed up 1.5 percent to 10,370.53 after the Bank of Japan kept monetary policy unchanged at the current super loose setting. Exporters climbed, with Sony Corp. up 2.7 percent and Canon Inc. adding 1.6 percent.

Hong Kong’s Hang Seng index added 1.6 percent to 22,993.86. South Korea’s Kospi advanced 0.8 percent to 2,037.09 and Australia’s S&P/ASX 200 gained 0.8 percent at 4,771.90. China’s Shanghai Composite Index jumped 1.8 percent to 2,904.11.

Benchmark oil for February delivery gained 13 cents to $89.50 a barrel in electronic trading on the New York Mercantile Exchange.

TOKYO – Asian stock markets rose Tuesday as tensions on the Korean peninsula eased a few notches.

Investors spent the previous day worried about possible North Korean retaliation against South Korean military drills on a frontline island that was shelled by the North last month.

Instead, Pyongyang backed off threats to strike back and reportedly offered concessions on its nuclear program.

Japan’s Nikkei 225 stock average rose 0.7 percent to 10,291.68 ahead of a policy decision by the central bank. The Bank of Japan is expected to keep monetary policy unchanged at the current super loose setting after a key survey last week showed deteriorating business sentiment.

Japanese exporters climbed, with Sony Corp. up 1.7 percent and Canon Inc. adding 1 percent. Shares of Fuji Heavy Industries Ltd. rose 0.6 percent after the Nikkei financial daily reported that the company is in talks with Chinese carmaker Chery Autuomobile Co. to establish a joint-venture factory.

Elsewhere, Hong Kong’s Hang Seng index added 1.3 percent to 22,940.58. South Korea’s Kospi advanced 0.9 percent to 2,038.87 and Australia’s S&P/ASX 200 was up 0.9 percent at 4,776.80.

China’s Shanghai Composite Index gained 0.9 percent to 2,877.11. Markets in Taiwan, India, and Singapore also rose.

In New York Monday, low trading volumes and a lack of economic reports kept stocks confined to a narrow range Monday. Indexes finished mixed and bond yields were barely changed.

The Dow Jones industrial average fell 13.78, or 0.1 percent, to 11,478.13. The broader Standard and Poor’s 500-stock index rose 3.17, or 0.3 percent, to 1,247.08. The Nasdaq composite index gained 6.59, or 0.3 percent, to finish at 2,649.56.

In currencies, the dollar slipped to 83.69 yen from 83.78 yen late Monday. The euro rose to $1.3169 from $1.3126.

Benchmark oil for February delivery rose 19 cents at $89.56 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose 77 cents to settle at $89.37 on Monday.

SEOUL, South Korea – World stock markets were mixed Monday amid investor unease as South Korea went ahead with a military drill on a frontline island despite threats of North Korean retaliation.

Inter-Korean tensions, a longtime geopolitical risk in Asia, have spiked to dangerous levels since Pyongyang launched a deadly artillery barrage on the South Korean island of Yeonpyeong last month in response to military exercises by Seoul.

North Korea had warned the South of “catastrophe” if it went ahead with a new round of live-fire drills delayed by bad weather. Seoul finally launched the exercise, which lasted about 90 minutes, on the island Monday afternoon and there were no immediate signs of any North Korean response.

South Korea’s benchmark Kospi index closed 0.3 percent lower to 2,020.28, nearly erasing earlier declines of as much as 1.5 percent. South Korea’s currency, the won, edged marginally higher to 1,150.20 to the dollar. The country’s financial markets often show resilience during times of tension with North Korea.

Still, the uncertainty was seen as a factor in dragging Asian markets lower.

“It’s something that can go very bad,” Jackson Wong, vice president at Tanrich Securities in Hong Kong, said of the Korean tensions.

South Korean technology stocks were mixed. LG Display Co., which has an LCD factory near the heavily fortified land border with North Korea, fell 2.6 percent. LG Electronics Inc. declined 0.9 percent. Market bellwether Samsung Electronics Co., however, managed a gain of 0.7 percent.

The military tensions hurt sentiment across the region.

Japan’s Nikkei 225 index fell 0.9 percent to 10,216.41 and Hong Kong’s Hang Seng index shed 0.3 percent to 22,639.08.

In early European trading, Britain’s FTSE 100 rose 0.2 percent to 5,882.90. France’s CAC-40 gained 0.7 percent to 3,894.13 and Germany’s DAX was up 0.6 percent at 7,024.64.

U.S. stocks were set to open marginally higher.

Dow futures were up 10 points, or 0.1 percent, at 11,440, while broader Standard & Poor’s 500 futures rose 0.9 point, or 0.1 percent, to 1,239.30.

Back in Asia, the Shanghai Composite index slid 1.4 percent to 2,853.92 amid the Korean worries.

“The tensions gave investors a reason to sell off stocks on profit-taking, though it would really affect the financial environment if hostilities broke out,” said Liu Kan, an analyst at Guoyuan Securities in Shanghai.

Australia’s S&P/ASX 200 shed 0.5 percent to 4,829.20. Benchmarks in Thailand, Singapore, Taiwan and New Zealand also retreated, while those in India and the Philippines rose.

Ongoing worries about Europe’s debt problems weighed on exporter shares in Tokyo. Kyocera Corp. fell 1.2 percent, while Ricoh Co. declined 2 percent.

Toyota Motor Corp. was off 0.8 percent after the Nikkei financial daily reported that the world’s biggest automaker could face a double-digit decline in Japan sales next year.

In New York Friday, stocks ended flat as investors shrugged off encouraging economic signs and a tax-cut package expected to lift economic growth. The Dow Jones industrial average fell 7.34 points, or 0.1 percent, to close at 11,491.91.

In currencies, the dollar fell to 83.82 yen from 83.96 yen late Friday. The euro fell to $1.3167 from $1.3186.

Benchmark crude for January delivery was up 6 cents at $88.08 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose 34 cents to settle at $88.02 on Friday.

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Associated Press researcher Ji Chen in Shanghai contributed to this report.

TOKYO – Asian stock markets fell Monday as Seoul prepared to hold live firing drills that threaten to escalate tensions with North Korea.

South Korea’s Kospi was down 0.9 percent to 2,009.52 after earlier falling as much as 1.5 percent.

South Korea said Monday it would go ahead with the drills from a front-line island despite North Korea’s threat to retaliate. Marines were expected to conduct the one-day artillery drills on Yeonpyeong Island, which was shelled by a North Korean artillery barrage last month.

The North has warned of a “catastrophe” if South Korea goes ahead with the drills.

Korean blue chips lost ground, with LG Electronics Inc. down 1.7 percent.

The geopolitical concerns hurt sentiment across the region.

Japan’s Nikkei 225 index was down 0.3 percent to 10,271.28, Hong Kong’s Hang Seng index shed 0.4 percent to 22,626.52 and the Shanghai Composite index fell 0.8 percent to 2,868.95. Benchmarks in Singapore and New Zealand also retreated.

Ongoing worries about Europe’s debt problems weighed on exporter shares in Tokyo as well. Kyocera Corp. fell 1.2 percent, while Ricoh Co. declined 1.4 percent.

Toyota Motor Corp. was off 0.3 percent after the Nikkei financial daily reported that the world’s biggest automaker could face a double-digit decline in Japan sales next year.

Australian shares, however, managed to climb into positive territory on higher metals prices. The S&P/ASX 200 rose 0.1 percent to 4,766.1.

In New York Friday, stocks ended flat as investors shrugged off encouraging economic signs and a tax-cut package expected to lift economic growth. The Dow Jones industrial average fell 7.34 points, or 0.06 percent, to close at 11,491.91.

In currencies, the dollar fell to 83.86 yen from 83.96 yen late Friday. The euro fell to $1.3149 from $1.3186.

Benchmark crude for January delivery was up 42 cents at $88.44 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose 34 cents to settle at $88.02 on Friday.

BANGKOK – World stock markets were mixed Wednesday as traders began to shake off jitters over a tense standoff between North and South Korea, although some investors viewed Europe’s debt problems with renewed trepidation.

Oil prices rose to near $82 a barrel in Asia as an upward revision of U.S. economic growth and a report showing an unexpected jump in crude inventories provided mixed signals on demand. In currencies, the dollar rose against the yen and the euro.

European bourses were higher in early trading, with Britain’s FTSE 100 up 0.5 percent to 5,610.79 and Germany’s DAX 0.5 percent higher to 6,737.960. France’s CAC-40 was up 0.4 percent to 3,739.96. Wall Street was set for a muted start with Dow futures down less than 0.1 percent at 11,009.

The picture was mixed in Asia, a day after an artillery clash between North and South Korea sent tensions on their divided peninsula soaring. South Korea’s financial markets opened sharply lower — 2.4 percent — before quickly paring losses; the Kospi finished the day only 0.2 percent lower at 1,925.98.

Japan’s Nikkei 225 stock average fell 0.8 percent to 10,030.11, after briefly falling below the 10,000 mark earlier in the session. The South Korean won dropped as much as 3.2 percent against the dollar in early trading, but recovered to finish 0.4 percent lower.

Rommel Lee, an analyst at Shinhan Investment Corp. in Seoul, said that China’s call for a peaceful solution to the tension on the Korean peninsula helped calm nerves among investors Wednesday. Chinese Foreign Ministry spokesman Hong Lei on Tuesday called on both sides, without naming them, “to do more to contribute to peace and stability on the peninsula.”

“China saying to North Korea, ‘find a peaceful solution to this incident’ caused a positive reaction in the market, and overall it limited the negative effect,” said Lee.

Hong Kong’s Hang Seng index finished 0.6 percent up to 23,023.86. On the mainland, Chinese shares rebounded in active trading, with the benchmark Shanghai Composite Index gaining 1.1 percent, to 2,859.94. The Shenzhen Composite Index for China’s smaller, second exchange rose 2.6 percent to 1,333.74.

As the Korean crisis receded — at least in the eyes of investors — they began to worry anew that the much ballyhooed bailout of Ireland’s banking sector may not be enough to contain Europe’s debt crisis. Stock traders panicked and dumped European shares Tuesday, sending Portugal’s benchmark stock index down 2.2 percent by the close. The euro slid below $1.34 for the first time in two months as investors sought the relatively safety of the dollar.

Spooked by the scale of Greece’s bailout requirements in May and Ireland’s banking failures, international investors are looking much closer at the public finances of eurozone countries and they don’t like what they’re seeing, particularly in Portugal.

“For a while now, investors were pretty complacent over the European credit woes. So I think investors have underestimated how long the Irish problem may drag out,” said Sean Darby, chief Asia Strategist at Nomura Global Equity Research in Hong Kong.

Shares in Australia and Taiwan were lower, while benchmarks in New Zealand and Singapore finished up.

The Korean incident had less of an effect on U.S. markets, but investors there still dumped shares heading into the Thanksgiving holiday. Sentiment was also hurt as the Federal Reserve lowered its growth forecast for next year.

In a report releasing minutes from its last meeting Nov. 3, the Fed predicted that the economy will grow only 2.4 percent to 2.5 percent this year. That’s down sharply from a previous projection of 3 percent to 3.5 percent. Next year, the economy will expand by 3 percent to 3.6 percent, the Fed said, also much lower than its June forecast.

Benchmark oil for January delivery was up 48 cents to $81.73 a barrel in electronic trading on the New York Mercantile Exchange. The contract lost 49 cents to settle at $81.25 on Tuesday.

In currencies, the dollar fell to 83.02 yen from 83.16 late Tuesday in New York. The euro dropped to $1.3344 from $1.3363.

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AP business writer Kelly Olsen contributed from Seoul, and researcher Ji Chen contributed from Shanghai.

BANGKOK – Asian stock markets mostly fell Wednesday as investors exited riskier assets amid a tense military standoff between North and South Korea and grew more worried there may be no immediate end in sight to Europe’s debt crisis.

Oil prices rose slightly to near $82 a barrel in Asia as a report showing an unexpected jump in crude inventories provided mixed signals on demand. In currencies, the dollar rose against the yen but was lower against the euro.

South Korea’s financial markets opened sharply lower Wednesday the day after an artillery clash between North and South Korea sent tensions on their divided peninsula soaring. The Kospi index fell 3.3 percent in the opening minutes, though quickly pared losses and was 0.4 percent lower in early afternoon trading at 1,921.29.

Japan’s Nikkei 225 stock average fell 0.7 percent to 10,044.52, after briefly falling below the 10,000 mark earlier in the session.

The South Korean won, meanwhile, dropped 2.6 percent against the dollar in early trading, but also recovered to trade 1 percent lower.

Rommel Lee, an analyst at Shinhan Investment Corp. in Seoul, said that China’s call for a peaceful solution to the tension on the Korean peninsula helped calm nerves among investors Wednesday.

Chinese Foreign Ministry spokesman Hong Lei on Tuesday called on both sides, without naming them, “to do more to contribute to peace and stability on the peninsula.”

“China saying to North Korea, ‘find a peaceful solution to this incident’ caused a positive reaction in the market, and overall it limited the negative effect,” said Lee.

As market jitters over the Korean peninsula eased, investors began to worry anew that the much ballyhooed bailout of Ireland’s banking sector may not be enough to contain Europe’s debt crisis. Stock traders panicked and dumped European shares Tuesday, sending Portugal’s benchmark stock index down 2.2 percent by the close. The euro slid below $1.34 for the first time in two months as investors sought the relatively safety of the dollar.

Spooked by the scale of Greece’s bailout requirements in May and Ireland’s banking failures, international investors are looking much closer at the public finances of eurozone countries and they don’t like what they’re seeing, particularly in Portugal.

“For a while now, investors were pretty complacent over the European credit woes. So I think investors have underestimated how long the Irish problem may drag out,” said Sean Darby, chief Asia Strategist at Nomura Global Equity Research in Hong Kong.

Shares in Australia, Taiwan, and New Zealand were lower, while Hong Kong’s Hang Seng index rose 0.7 percent to 23,054.61. Benchmarks in Singapore and Shanghai also rose.

The Korean incident had less of an effect on U.S. markets, but investors there still dumped shares heading into the Thanksgiving holiday. Sentiment was also hurt as the Federal Reserve lowered its growth forecast for next year.

In a report releasing minutes from its last meeting Nov. 3, the Fed predicted that the economy will grow only 2.4 percent to 2.5 percent this year. That’s down sharply from a previous projection of 3 percent to 3.5 percent. Next year, the economy will expand by 3 percent to 3.6 percent, the Fed said, also much lower than its June forecast.

Wednesday will bring an unusually large amount of economic data since several reports that normally come out Thursday are being moved up because of the holiday. Reports are due out on weekly claims for unemployment benefits, durable goods and personal income.

Overnight on Wall Street, the Dow Jones industrial average fell 1.3 percent to 11,036.37, while the broader Standard & Poor’s 500 lost 1.4 percent to 1,180.73.

Benchmark oil for January delivery was up 37 cents to $81.62 a barrel in electronic trading on the New York Mercantile Exchange. The contract lost 49 cents to settle at $81.25 on Tuesday.

In currencies, the dollar rose slightly to 83.24 yen from 83.16 late Tuesday in New York. The euro rose to $1.3397 from $1.3363.

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AP business writer Kelly Olsen contributed from Seoul.

NEW YORK (Reuters) – Stocks sank on Tuesday as investors dumped risky assets on escalating tensions in the Korean peninsula and as euro-zone debt worries mounted.

South Korea warned of retaliation if North Korea took more aggressive steps after Pyongyang fired artillery shells at a South Korean island, in one of the heaviest attacks in the area since the Korean War ended in 1953. The iShares MSCI South Korea Index Fund (EWY.P) fell 5.4 percent.

The unexpected flare-up increased investor anxiety. The CBOE Volatility Index (.VIX), Wall Street’s fear gauge, rose 12.3 percent, its largest daily percentage gain in more than three months.

Jeff Kleintop, chief market strategist at LPL Financial in Boston, said the news reminded traders how easily markets can be disturbed by geopolitics.

“As we move into 2011, (U.S. President Barack) Obama is going to be a lot less focused on domestic policy — where we have gridlock — and more focused on foreign policy, and confronting some of these regimes. That might mean higher geopolitical risk premiums going forward,” Kleintop said.

Ireland’s unsteady situation hurt the euro, which also had contributed to the slump in stocks. The equity market’s tight link to the euro has broken of late but resurfaces in times of turmoil. Investors remain concerned about a widening debt crisis on the continent.

The European Union urged Ireland to adopt an austerity budget on time to unlock promised EU/IMF funding, while Irish Prime Minister Brian Cowen rebuffed calls for a snap election and insisted the budget would go ahead as planned on December 7.

An index of U.S.-traded shares of Irish companies (.BKIE) fell 4.9 percent.

“Now we have sovereigns in trouble being bailed out by essentially super-sovereigns,” U.S. economist Nouriel Roubini told Reuters Insider. “But there’s not going to be anybody coming from Mars or the moon to bail out the IMF or the euro zone.”

The Dow Jones industrial average (.DJI) lost 142.21 points, or 1.27 percent, to 11,036.37. The Standard & Poor’s 500 (.SPX) fell 17.11 points, or 1.43 percent, to 1,180.73. The Nasdaq Composite (.IXIC) dropped 37.07 points, or 1.46 percent, to 2,494.95.

Declining stocks far outnumbered advancing ones on the NYSE by a ratio of about 7 to 2, while on the Nasdaq, three stocks fell for every share that rose.

The energy sector (.GSPE) of the S&P 500 led declines, down 1.9 percent as U.S. oil futures prices fell 0.6 percent to settle at $81.25 a barrel.

Oil giants Chevron (CVX.N) and Exxon Mobil (XOM.N), each down about 2 percent, accounted for 15.5 percent of the drop in the Dow industrials.

The S&P 500 has found strong support around the 1,175 area. The 23.6 percent retracement of the index’s 2010 low-to-high gain, last week’s low and its 50-day moving average all coincide near that level.

Market reaction was muted to minutes from the Federal Reserve’s policy-making panel that showed the FOMC considered even more drastic options to stimulate the economy before it settled on buying $600 billion in bonds in a second round of quantitative easing.

Fed officials revised down their forecasts for economic growth next year, and saw unemployment at higher levels than they had the last time they issued official forecasts in June.

Data earlier showed the U.S. economy grew faster than previously estimated in the third quarter, but a slump in sales of previously owned homes in October indicated the recovery remains too anemic to reduce high unemployment.

About 7.6 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, below the year-to-date daily average of 8.7 billion.

(Reporting by Rodrigo Campos; Additional reporting by Caroline Valetkevitch and Chrystia Freeland; Editing by Jan Paschal)