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~~~~~((#))016005000g-Stocks & Shares (World)

Asian stocks, dollar down on prolonged war fears

SINGAPORE: The prospect of a drawn-out war in Iraq and worries about a deadly flu-like virus pummelled Asian stocks on Monday, while the dollar sagged on fears of slowing US economic growth.

European stock traders braced for sharp falls at the opening of trade, with the London and Frankfurt markets expected to drop about two percent.

Oil prices tagged on an additional one percent to last week's 12 percent rally, as renewed violence in Nigeria dampened hopes of a speedy resumption of crude exports from the oil producing country. Safe-haven bonds and gold rose.

Asian stocks racked up their biggest losses in six months, with major markets down more than three percent. Stocks in Hong Kong, Taiwan and Singapore plunged on fears a flu-like virus called Severe Acute Respiratory Syndrome (SARS) would cause a tourism slump and dent corporate activity.

"Selling pressure remains heavy because we don't see any positive news. The market has been hurt by uncertainty over war, and now worries over SARS also weigh on sentiment," said More Huang, research manager at UBS Asset Management in Taipei.

Tokyo stocks fell 3.7 percent, with the Nikkei sliding to near 20-year lows, on fears a prolonged conflict in Iraq will hamper global economic growth -- hurting exporters already smarting from the soft US dollar. Airline stocks across Asia fell more than five percent.

Wall Street also was expected to open lower, with Nasdaq futures falling 1.3 percent.

Stocks and the dollar have been drifting lower since March 21, as tough Iraqi resistance and overextended US supply lines wiped out expectations of a quick victory by the US-led forces.

The weekend's news from the battlefield -- US troops digging in south of Baghdad for a prolonged campaign and taking casualties from suicide attacks -- reinforced worries a long war will hurt the fragile economic recovery.

Gold advanced 1.1 percent and 10-year Japanese government bond rose, pushing yields to record lows. The dollar hit a two-week low against the euro and fell against the yen.

"The market is shifting back to what it was focusing on two or three months ago, and that's the twin deficits in the US and its economy," said Mitsuru Yaguchi, a senior fixed income strategist at Mitsubishi Securities in Tokyo.

WILD QUARTER

Stock markets world-wide were poised to close the quarter with hefty losses. European stocks were expected to chalk up a 10 percent-plus decline for the period and the blue-chip Dow Jones industrial average a loss of two percent.

The numbers belie the period's gyrations.

Uncertainty over a possible US invasion of Iraq hammered US stocks to near five-year lows and shoved European stocks to levels unseen since 1997.

When war appeared all but unavoidable, markets rebounded and Wall Street racked up its biggest weekly gain in 20 years.

Most markets hit multimonth highs on March 21, the second day of the war. But stocks retreated last week as reports of Iraqi resistance and pictures of dead US soldiers brought home the message that the war would be bloodier and longer than many investors expected.

"The market has swung from euphoria to pessimism to uncertainty," said Lynn Reaser, senior market strategist at Banc of America Capital Management in St. Louis.

In the same vein, oil prices hit their highest levels since the previous Gulf war in February on fears the war could disrupt Middle East supplies. Crude then plummeted 25 percent in one week to hit a three-month low on March 21. It has gained 16 percent since and is roughly unchanged for the quarter.

The dollar hit a seven-month low against the yen in early March but is off just 0.5 percent for the quarter against the Japanese currency. The euro, which hit a four-year high against the dollar on March 11, did retain most of its gains and is up three percent for the quarter.

NIKKEI DOWN, BONDS UP

Japan's benchmark Nikkei stock average fell 3.7 percent to below 8,000, closing the fiscal year with a 27.7 percent loss.

Hong Kong shares fell nearly three percent to a four-and-half-year low. Shares in Singapore, Taiwan and South Korea dropped more than three percent.

"We will raise our cash reserves," said Choi Yong-kyu, a fund manager at KEB Commerce Investment Trust in South Korea. "Investors are increasingly growing pessimistic about the economic fundamentals."

The broad-based MSCI Asia Pacific Free index fell 2.6 percent, -- its biggest daily loss in six months.

Gold rose to $334.60 an ounce, up $3 from Friday's close of $331.60 an ounce.

Japanese government bond futures rose, pushing the yield on the benchmark bond fell to a record low of 0.695 percent.

Yields on benchmark US 10-year Treasuries fell to 3.84 percent, from 3.90 percent on Friday, after falling 20 basis points last week.

US light crude traded up 35 cents at $30.51.

The dollar traded around 119.20 yen versus 119.73 on Friday. The euro climbed to $1.0836 from $1.0815.-Reuters