World stocks sink as West says Syria must be punished

NEW YORK (AFP) - Global stocks plunged and oil prices shot up on Tuesday as the West moved closer to punitive military action against Syria for its alleged attack on civilians using chemical weapons.

Losses in major European markets and the US Nasdaq exchange topped 2 per cent, while the broader US measure, the S&P 500, gave up 1.6 per cent and the Dow Jones Industrial Average 1.1 per cent.

Emerging markets, already under assault from stalling growth and huge capital outflows, also took steep hits, with the damage topping 7 per cent in Dubai.

The yen strengthened as a safe-haven currency, but the dollar and euro held their own as foreign exchange traders dumped lesser currencies.

The United States, France and Britain stepped up warnings that Damascus would be held accountable for the Aug 21 attack, which left hundreds of people dead from what is believed to have been outlawed chemical gas.

The US defence chief said his forces were ready to launch strikes against the Syrian regime, amid growing Western and Arab calls for action.

"We are prepared. We have moved assets in place to be able to fulfil and comply with whatever option the president wishes to take," US Defense Secretary Chuck Hagel said from Brunei.

Syria responded defiantly while ally Iran warned that an attack by the US and its allies would threaten the stability and security of the region.

"This definitely will not be in the interest of those fanning violence," Iran's Defence Minister Hossein Dehqan said.

Markets in East Asia were modestly lower just as the rhetoric began to heat up. But the threats took a toll, with Singapore stocks losing 1.6 per cent, Indonesia 3.7 per cent and the key Bombay index dropping 3.2 per cent.

Stocks in Turkey, which abuts Syria and has already seen a massive inflow of refugees from the civil war, dropped 4.7 per cent and the lira slumped to a record low despite the central bank warning it has a war chest of up to US$40 billion to defend the currency.

The damage was heavy in Europe as well: the Eurostoxx 50 blue chip measure dropped 2.6 per cent; Frankfurt's DAX 30 fell 2.3 per cent, and the CAC 40 in Paris dropped 2.42 per cent.

London's FTSE came off better, sagging 0.8 per cent.

"Markets are tanking in Europe today, as Syria related risk-aversion prevails," said trader Anita Paluch at Gekko Markets.

"The outlook of a military action in relation to the use of chemical weapons is clearly dampening risk appetite." In the US, the Nasdaq bore the brunt of the selloff, losing 2.2 per cent, with large-cap tech counters down sharply: Apple (-2.9 per cent), Facebook (-4.1 per cent), and Microsoft (-2.6 per cent).

The specter of a heightened conflict added to worries over weak global economic growth, which has sparked damaging capital outflows from major emerging economies.

"Any potential change in the balance of power in Syria's civil war poses a new uncertainty for financial and commodity markets," said Paul Christopher of Wells Fargo Advisors.

Oil prices pushed up - exacerbating the damage from falling non-dollar currencies in the emergents - on fears of possible production and shipping disruptions in the Middle East region.

The benchmark New York contract WTI crude for October delivery jumped US$3.09 to hit US$109.01 a barrel, a level last seen in February 2012.

In London, Brent North Sea oil hit its highest price in six months, reaching US$114.36, up US$3.63 from Monday.

Syria is not a significant oil producer, but nearby Iraq has become an important one, in addition to the oil and gas powers of the Gulf.

And separate troubles in Libya further reduced its output on Monday, adding to the tightened short-term market supplies.

Still, some analysts said there was ample supply in the market to temper prices, from both North America and Saudi Arabia.

"Libya and Iraq at this point both will present persistent problems with production levels, but the aggregate volumes lost are still likely to be manageable," said Mr Greg Priddy at Eurasia Group.

"The volumes from actual outages in Libya and Iraq remain insufficient to offset the trend toward more ample supplies on surging North American production."