* Flight-to-safety trade on N. Korea attack sinks stocks
* Euro drops on Irish debt worries, Korea tensions
* Gold safe-haven status overcomes U.S. dollar strength
(Updates with European market close, comment)
By Daniel Bases
NEW YORK, Nov 23 (Reuters) - North Korea's deadly shelling
of a South Korean island on Tuesday rattled global financial
markets, leading investors to buy safe-haven assets, such as
the U.S. dollar and Treasuries, and sell stocks.
The euro, already soured by Ireland's debt crisis,
accelerated its decline as investors feared a rescue package
for Dublin may not stop problems from spreading to other
indebted euro zone countries. The currency was near a two-month
low with little relief in sight.
An upward revision of U.S. third-quarter gross domestic
product growth added to the greenback's allure while
weaker-than-forecast sales of previously owned U.S. homes did
little to diminish the dollar. For details, see []
Gold's safe-haven status overcame the stronger U.S. dollar,
but crude oil fell.
"Obviously there is a big flight-to-safety trade going on.
We've seen Treasury yields fall in tandem with some pretty big
declines in equity prices," said Kim Rupert, managing director
of global fixed income analysis at Action Economics in San
Francisco.
North Korea's artillery barrage killed two South Korean
soldiers in one of the fiercest attacks on its neighbor since
the Korean War ended in 1953. []
In Korea, December KOSPI 200 index futures <KSc1> fell 2.4
percent in a late sell-off as the news broke at the end of the
trading day while the dollar rose more than 4 percent against
the won in offshore trade before trimming gains <KRWNDFOR=>.
The iShares MSCI South Korea Index Fund <EWY.P> traded down
5.3 percent during New York hours. Shares of Korea Electric
Power <KEP.N> traded in New York lost 4.75 percent to $12.22.
In midday trade, the Dow Jones industrial average <>
fell 154.77 points, or 1.38 percent, to 11,023.81. The Standard
& Poor's 500 Index <.SPX> lost 17.92 points, or 1.50 percent,
at 1,179.92. The Nasdaq Composite Index <> dropped 43.76
points, or 1.73 percent, at 2,488.26.
The MSCI All-Country World equity index <.MIWD00000PUS>
fell 1.94 percent while the Thomson Reuters global stock index
<.TRXFLDGLPU> dropped 1.08 percent.
The FTSEurofirst 300 <> index of top European shares
fell 1.53 percent to 1076.71, its lowest close in six weeks.
"The Irish bailout continues to cause uncertainty amongst
European investors as concerns about the potential of contagion
to other countries have increased," said Angus Campbell, head
of sales at Capital Spreads.
IRISH JITTERS
The debt tensions in Ireland led to weak bank shares in
Europe in addition to pulling the euro down 1.77 percent at
$1.3384 <EUR=>, its weakest point since late September.
Bank of Ireland <BKIR.I> fell 24.94 percent. Other banks to
fall included Spain's Banco Santander <SAN.MC>, off 4.73
percent, and BBVA <BBVA.MC> off 3.90 percent.
The U.S. dollar rose 1.16 percent against a basket of
currencies that make up its major trading partners. The dollar
however fell 0.53 percent to 82.84 against the yen <JPY=>.
In Europe, Bund futures <FGBLc1> rose more than one full
point to 128.94 as political disarray in Ireland cast doubt
over whether the government could pass its austerity budget and
pave the way for a European Union/IMF aid deal to tackle its
debt problems.
The premium investors demand to hold Spanish bonds over
German benchmarks rose to a euro-lifetime high of 237 basis
points after Madrid was forced to pay a high cost to sell
short-term bills, reflecting contagion risks from Ireland.
Irish spreads rose back above 600 bps and other peripheral
government bond yield spreads widened. The cost of insuring
higher-yielding euro zone sovereign debt against default also
was rising, even though traders said the European Central Bank
had been buying bonds, mainly Portuguese.
"Europe is in self-implode mode. There is a huge
flight-to-quality bid developing," a trader said.
Portugal and Spain are seen as the next weakest links and
an official from Portugal's main opposition party said it would
allow passage of the minority Socialist government's 2011
budget in the final vote on Nov. 26. []
Benchmark 10-year U.S. Treasuries rose 15/32 of a point in
price, driving the yield down to 2.75 percent <US10YT=RR>.
Spot gold prices <XAU=> rose $10.30 to $1,376.10, while
crude oil <CLc1> fell 33 cents $81.41 per barrel.
(Additional reporting by Emelia Sithole-Matarise, Joanne
Frearson, Kirsten Donovan, Natsuko Waki, Chris Reese; Editing
by Kenneth Barry)
