LONDON (AP) - Mounting concerns over Libya's violent crisis battered stocks once again Tuesday and sent oil prices surging, while the earthquake in the New Zealand city of Christchurch pushed the country's currency sharply lower.
With deep rifts opening up in Moammar Gadhafi's regime, air force pilots defecting and a bloody crackdown in the capital of Tripoli, investors are fretting over how the crisis will end and what the impact on the North African country's oil production will be.
Libya is the world's 18th largest oil producer, pumping out around 1.8 million barrels a day, or a little under 2 percent of global daily output. The OPEC country also sits atop the biggest oil reserves in the whole of Africa.
With so much uncertainty surrounding a large chunk of the world's daily oil production, oil prices surged. Benchmark crude for March delivery was up $7.88 a barrel, or 9.1 percent, to $94.08 a barrel in electronic trading on the New York Mercantile Exchange.
"The Middle East will remain the market's focus today with moves in the oil price probably the best single indicator of the market's assessment of the wider implications of events there," said Adrian Foster, an analyst at Rabobank International.
With the oil price rising at such a rapid rate, stocks are inevitably under severe pressure.
Rising crude prices are a particular worry for investors as they reinforce fears of inflation and raw materials costs. They also stoke worries of a big drop in global demand levels, as experienced in previous oil price shocks in 1973-4, 1979 and 2008.
Given that unappetizing backdrop, investors' appetite for risk in other markets fell sharply. When risk appetite is low, investors usually look for shelter in the perceived safe havens of the U.S. dollar and gold at the expense of more risky investments such as stocks.
In Europe, the FTSE 100 index of leading British shares was down 1.1 percent at 5,946 while Germany's DAX fell 0.5 percent to 7,283. The CAC-40 in Paris was 1.4 percent lower at 4,041.
Wall Street was also poised for a retreat at the open as traders come back from a three day holiday weekend - Dow futures were down 1 percent at 12,257 while the broader Standard & Poor's 500 futures fell 1.4 percent to 1,324.
In the currency markets, the euro was down 0.6 percent at $1.3567 while the dollar fell 0.2 percent to 82.88 yen even after an announcement from Moody's Investor Services that it was putting Japan's credit rating on watch for a possible downgrade.
The impact of the Moody's statement was short-lived as the agency is merely lagging its rival Standard & Poor's, which earlier this year did actually downgrade its rating on Japan by one notch below Moody's Aa2 rating.
"The impact of developments in the Africa and Middle East on the yen have far outweighed any impact from Moody's announcement overnight to place Japan's credit rating on negative watch," said Lee Hardman, currency economist at the Bank of Toky0-Mitsubishi UFJ.
Even though Japan has massive public debts, it is widely considered to be one of the safest places for investors to park their cash in troubled times.
A powerful earthquake in the New Zealand city of Christchurch also rattled markets in the region. The quake occurred in the middle of the workday, toppled tall buildings and churches, crushed buses and killed at least 65 people in one of the country's worst natural disasters.
Following the quake, the New Zealand dollar slid to $0.7507 from $0.7636 before while New Zealand's benchmark index fell 0.7 percent to 3,358.71.
Elsewhere in Asia, the Nikkei 225 stock average shed 1.8 percent to close at 10,664.70. Hong Kong's Hang Seng lost 2.1 percent to 22,990.81 and South Korea's Kospi dropped 1.8 percent to 1,969.92.
Mainland China shares saw their biggest loss in over a month - the benchmark Shanghai Composite Index dived 2.6 percent to 2,855.52 while the Shenzhen Composite Index skidded 2.7 percent to 1262.82.
Comments by China's central bank governor, Zhou Xiaochuan, expressing Beijing's determination to rein in inflation renewed worries over the likelihood of further moves by the government to cool price increases.
Pamela Sampson in Bangkok contributed to this report.