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Asian Investors Wary of US Market Instability

An overnight decline on Wall Street led most markets across Asia lower Friday, after economic indicators showed U.S. consumer confidence to be shaky. Markets were also down from last week's close. Analysts and investors in Asia are likely to remain bearish, until Wall Street bottoms out.

Analysts say one of the key issues affecting Asian markets this week has been U.S. policy towards Iraq.

The markets responded favorably earlier in the week when Iraq said it would accept United Nations weapons inspectors back into the country.

But Mike Kurtz, Asia equity analyst for Bear Sterns, says that as long as the possibility of U.S. military action remains, oil prices are likely to stay high, and this will affect markets in oil-importing countries like Taiwan, Japan and Korea. "That certainly does impact the air carriers in the region," he said. "It also impacts the industrial economies in the region that are dependent on imported energy. There are a few other economies in Asia as well that have particular responses to oil prices. In some cases it's positive, as in Indonesia and Malaysia, which are net oil exporters."

Japan's Nikkei 225 index was down almost 2 percent on Friday, erasing gains made Thursday after the Bank of Japan announced it would purchase equities from Japanese banks.

Mr. Kurtz says that although the initial response to the BOJ announcement was positive, investors are generally bearish about the long-term outlook of the economy.

For the full week, the Nikkei lost 2.5 percent, to close at 9,481.

Korea's stock market was closed for a national holiday Friday, but on Thursday the main share index was almost 4 percent lower than last week's finish. It closed at 704.

Hong Kong's Hang Seng hit a 12-month low on Friday, closing at 9,328, 3 percent lower than the previous week. Hong Kong's economy is going through a period of restructuring, and Mr. Kurtz says investors here are afraid the Hong Kong dollar's peg to the U.S. dollar will not be retained. "A lot of downside in Hong Kong has been related to two issues," he said. "The first is perceptions that the strength of U.S. consumer spending may start to taper off. But we also have some concerns in Hong Kong this week about the sustainability of the pegged currency arrangement."

Taiwan's market shed just over 3 percent this week. The Taiex closed Friday at 4,429.