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War risk sends investors to Swiss franc, bonds

Investors were diving for cover into the Swiss franc and bonds on Friday as equities and the dollar crumpled on escalating worries of a war in retaliation for last week's attacks on the United States.

US President George Bush told Americans to steel themselves for a war on terrorism, sending another shiver through global markets about the economic repercussions.

Major European share indices tumbled to three year lows, mimicking Thursday's drop on Wall Street, while the Swiss franc surged to a 20 month high against the dollar and a new record high against the euro.

"The enduring theme is to be long Swiss franc as it is seen as the last true safe haven," Nick Parsons, currency strategist at Commerzbank in London.

If the Swiss franc was the safest place to be, then auto, financial and aviation stocks were seen as the most risky.

The FTSE Eurotop and the DJ Euro Stoxx 50 were down more than four per cent as investors cleared out of particularly vulnerable sectors.

European share markets have lost 15 per cent and the US market has fallen 10 per cent since Wall Street reopened on Monday and analysts said there were no near-term prospects for a recovery.

"There is no attempt to look at fundamental valuation. Fear has overtaken everything in the shorter term. And stocks have got to discount Armageddon before they look cheap," said Deutsche Bank managing director Nigel Cobby.

IFO ADDS TO WOES

European equity market woes intensified after news that Germany's Ifo economics institute survey had shown a worse than expected August business climate in the west of the country, piling on the agony about the economic outlook and company profits.

Technology shares registered the biggest decline, down 6.3 per cent, as sector leaders Siemens, Nokia and Ericsson plunged.

Peugeot, Porsche and Renault led a five per cent fall in the auto sector, with individual losses of 7-8 per cent each.

Insurers were also hit hard, with France's Axa down six per cent and reinsurance companies Swiss Re and Munich Re both dropping more than four per cent.

Europe's woes followed a drop of over two per cent by Tokyo's benchmark Nikkei average which closed at 9,554.99 after falling as low as 9,382.95 earlier, a fresh 17-year intraday low.

Asia was unnerved by markets in the United States, where the Dow Jones Industrial Average dropped 382.92 points or 4.37 per cent to 8,376.21 on Thursday, while the tech-laced Nasdaq index ended 56.87 points or 3.72 per cent lower at 1,470.93.

JAPAN SAYS MAY INTERVENE AGAIN

Japanese Finance Minister Masajuro Shiokawa said on Friday that Japan may intervene again in the foreign exchange market to hold down the yen but would have to hold talks before any co-ordinated effort with other countries.

"We might. We will decide after discussions (within the ministry and with other authorities)," Shiokawa said, when asked by reporters about the dollar's return to below yen 117 on Friday and whether the ministry would be prepared to carry out intervention during Japan's public holiday on Monday.

The Bank of Japan earlier stepped in for the third day this week to stop an export-crippling rise in its currency, pushing the dollar to a brief high around yen 117.40.

"Currency markets are being driven by risk aversion and the Swiss franc is strengthening against the euro and dollar on safe-haven flows," said Nick Stamenkovic, senior strategist at Nomura International.

War concerns rose again after an envoy of Afghanistan's ruling Taliban said they were not ready to hand over Osama bin Laden, the multi-millionaire Saudi born militant who has been named by the US as the prime suspect for last week's airplane attacks.

SHORT BONDS, GOLD OFFER SANCTUARY

US assets had taken a battering in Thursday trade, with equities tumbling and even safe-haven Treasuries losing some shine as the market worried extra military and other fiscal spending would require extra bond issuance.

Analysts say ebbing confidence in the US economy and markets will further benefit the yen, the Swiss franc and to some extent the euro in the near future.

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