Asian Stocks Decline

Asian Stocks Pare Gain as Dollar Rises on Koreas, Ireland Aid

By Shiyin Chen |

Asian stocks pared gains and the dollar rose to a two-month high as escalating tensions in the Korean peninsula offset investor optimism over Ireland’s 85 billion-euro ($113 billion) bailout.

The MSCI Asia Pacific Index was rose 0.1 percent to 129.03 as of 11:24 a.m. in Tokyo after earlier advancing as much as 0.5 percent. Standard & Poor’s 500 Index futures added 0.4 percent, trimming gains of as much as 0.8 percent. The won traded near a two-month low. The Dollar Index reached the highest level since Sept. 20, while the euro rose as much as 0.9 percent to $1.3354 before reversing its rally.

Global stocks have dropped for three straight weeks, wiping out $2.3 trillion from market values worldwide, amid concern the Irish debt crisis will spread. European governments ended talks in Brussels yesterday by handing Ireland an aid package and diluting proposals to force bondholders to cover a share of future bailouts. South Korean President Lee Myung Bak said the North will be made to pay for any more provocation as his nation and the U.S. held joint military exercises.

“There seems to be much more hawkishness within South Korea to respond with more oomph to the steps that the North Koreans have taken,” Richard Yetsenga, Hong Kong-based global head of emerging-markets currency strategy at HSBC Holdings Plc, said on Bloomberg Television. Ireland’s aid “is entirely consistent with what has been rumored, so for the markets it’s a net neutral from that perspective. But the fact that senior bondholders are not going to bear the cost is a big deal.”

Japan’s Nikkei 225 Stock Average climbed 0.3 percent, giving up most of its earlier gains, while Australia’s S&P/ASX 200 Index lost 0.4 percent. The Kospi index dropped 0.2 percent in Seoul, heading for its lowest level since Oct. 29.

Korean Skirmish

South Korea’s military ordered residents of Yeonpyeong island to bomb shelters yesterday and an artillery shot was heard on the North Korean mainland as the South’s navy began maneuvers with U.S. warships, a defense ministry spokesman said. China called for “emergency” discussions next month involving itself, the two Koreas, the U.S., Russia and Japan.

“It’s become clear that more patience and tolerance only leads to bigger provocations,” President Lee said today in a national address from Seoul. “North Korea will be made to pay for any further provocation no matter what.”

Read the rest of this story on Bloomberg’s…