Wall St drops on Korean tension, euro-zone woes -24th Nov 2010

NEW YORK: U.S. stocks sank on Tuesday, Nov 23 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 Dec. 7. [ID:nLDE6AL2AG].

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 CLc1 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. (Source: The Edge by Reuters