Markets tumble as investors head for safe havens

World markets tumbled yesterday as investors fled from risky assets into havens such as gold in response to global tension and worries about Iraq.

While Indian investors reacted to the change of government, emerging markets elsewhere took the brunt of heavy selling after the assassination in Baghdad of the head of Iraq's US-appointed Governing Council.

Emerging markets have suffered most from the flight to quality, pushing the MSCI Asia-Pacific index, which tracks some 850 stocks in the region, down 2.7 per cent to its lowest since November.

The Baghdad killing added to global security concerns after bombs in Turkey hours before the arrival of British prime minister, Mr Tony Blair.

Fears about security have driven the latest rise in oil prices and exacerbated worries about higher US interest rates - possibly next month - and a slowdown in the Chinese economy.

Gold prices rose by $6.50 in early trading, but settled off their highs for the day at $378 a troy ounce - up $1.50.

Wall Street was lower from the opening bell, with the Dow Jones Industrial Average down 100 in the first two minutes of trade.

By mid-session, the Dow had recovered somewhat to trade 0.9 per cent lower at 9,927.57, after the US military said it had discovered an artillery shell in Iraq containing the nerve agent Sarin. The Dow closed down 105.96 at 9,906.91. The Dow has fallen by just over 5 per cent since the scandal over the abuse of Iraqi prisoners broke on April 27th.

The Dublin market fell 0.57 per cent yesterday as a late afternoon rally lifted shares off lows. Elsewhere in Europe, the losses were more extensive. London shed 0.87 per cent.

All Asian bourses apart from New Zealand fell as hedge funds reduced their exposure to the region, many buying dollar-denominated assets in expectation of a US interest rate rise. Latin American equities also came in for heavy selling pressure with Brazil's Bovespa index down 2.7 per cent.

The FTSE Eurotop 300 index closed 1.4 per cent down at its lowest since March 22nd.

In the US, market watchers said the slide marked the latest evidence that Iraq had become a dominating factor on Wall Street.

Ms Liz Ann Sonders, chief investment strategist at Charles Schwab, said: "We need some victories, even psychological ones - the market is clearly thirsty for some good news out of Iraq."