Tokyo's benchmark Nikkei 225-stock average closed at a four-week low on Tuesday as security worries sparked by North Korea's firing of a missile into the Sea of Japan took their toll on blue-chip shares.
North Korea fired the short-range land-to-ship missile into the sea to the east of the Korean peninsula on Monday, the South Korean Defence Ministry said.
"To a certain extent, the news chilled sentiment here since it came on top of several bearish factors," Joji Maki, senior director at Baring Asset Management in Tokyo, told Reuters News Agency.
But he added: "We don't know what's happening after this, so we shouldn't overreact."
The Nikkei shed 204.46 points or 2.39 per cent to end the session at 8,360.49 points, its lowest close since January 31. The broader, capital-weighted TOPIX index also lost ground, closing 2.36 per cent lower at 819.18.
In Hong Kong, the benchmark stock index fell nearly 1 per cent on growing fears of war after the United States and Britain circulated a second UN resolution against Iraq. The Hang Seng Index lost 0.98 per cent or 90.99 points to close at at 9,148.48.
And in London, bad news in the financial sector pushed Britain's top shares 2.8 per cent lower in early trading. At last check, the FT-SE 100-stock index was down 103 points at 3,598.8 points, its lowest level in nearly two weeks.
Financial services giant Prudential slumped 16 per cent after it reported a rise in operating profit, but said it needed to maintain its financial flexibility when determining the 2003 dividend payment. The statement sparked concern it may cut the dividend.
Dealers said the threat of war with Iraq, coupled with concern over North Korea after it test-fired a cruise missile, continued to unsettle investors.
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