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World stocks sink as West says Syria must be punished

People walk by the Nasdaq stock market on August 23, 2013 in New York City
People walk by the Nasdaq stock market on August 23, 2013 in New York City. Global stocks plunged and oil prices shot up Tuesday as the West moved closer to punitive military action against Syria for its alleged attack on civilians using chemical weapons.

Global stocks plunged and oil prices shot up Tuesday as the West moved closer to punitive military action against Syria for its alleged attack on civilians using chemical weapons.

Losses in major European markets and the US Nasdaq exchange topped 2 percent, while the broader US measure, the S&P 500, gave up 1.6 percent and the Dow Jones Industrial Average 1.1 percent.

Emerging markets, already under assault from stalling growth and huge capital outflows, also took steep hits, with the damage topping 7 percent in Dubai.

The yen strengthened as a safe-haven currency, but the dollar and euro held their own as foreign exchange traders dumped lesser currencies.

The United States, France and Britain stepped up warnings that Damascus would be held accountable for the August 21 attack, which left hundreds of people dead from what is believed to have been outlawed chemical gas.

The US defense chief said his forces were ready to launch strikes against the Syrian regime, amid growing Western and Arab calls for action.

"We are prepared. We have moved assets in place to be able to fulfil and comply with whatever option the president wishes to take," US Defense Secretary Chuck Hagel said from Brunei.

Syria responded defiantly while ally Iran warned that an attack by the US and its allies would threaten the stability and security of the region.

"This definitely will not be in the interest of those fanning violence," Iran's Defence Minister Hossein Dehqan said.

Markets in East Asia were modestly lower just as the rhetoric began to heat up. But the threats took a toll, with Singapore stocks losing 1.6 percent, Indonesia 3.7 percent and the key Bombay index dropping 3.2 percent.

Stocks in Turkey, which abuts Syria and has already seen a massive inflow of refugees from the civil war, dropped 4.7 percent and the lira slumped to a record low despite the central bank warning it has a war chest of up to $40 billion to defend the currency.

The damage was heavy in Europe as well: the Eurostoxx 50 blue chip measure dropped 2.6 percent; Frankfurt's DAX 30 fell 2.3 percent, and the CAC 40 in Paris dropped 2.42 percent.

London's FTSE came off better, sagging 0.8 percent.

"Markets are tanking in Europe today, as Syria related risk-aversion prevails," said trader Anita Paluch at Gekko Markets.

"The outlook of a military action in relation to the use of chemical weapons is clearly dampening risk appetite."

In the US, the Nasdaq bore the brunt of the selloff, losing 2.2 percent, with large-cap tech counters down sharply: Apple (-2.9 percent), Facebook (-4.1 percent), and Microsoft (-2.6 percent).

The specter of a heightened conflict added to worries over weak global economic growth, which has sparked damaging capital outflows from major emerging economies.

"Any potential change in the balance of power in Syria's civil war poses a new uncertainty for financial and commodity markets," said Paul Christopher of Wells Fargo Advisors.

Oil prices pushed up -- exacerbating the damage from falling non-dollar currencies in the emergents -- on fears of possible production and shipping disruptions in the Middle East region.

The benchmark New York contract WTI crude for October delivery jumped $3.09 to hit $109.01 a barrel, a level last seen in February 2012.

In London, Brent North Sea oil hit its highest price in six months, reaching $114.36, up $3.63 from Monday.

Syria is not a significant oil producer, but nearby Iraq has become an important one, in addition to the oil and gas powers of the Gulf.

And separate troubles in Libya further reduced its output on Monday, adding to the tightened short-term market supplies.

Still, some analysts said there was ample supply in the market to temper prices, from both North America and Saudi Arabia.

"Libya and Iraq at this point both will present persistent problems with production levels, but the aggregate volumes lost are still likely to be manageable," said Greg Priddy at Eurasia Group.

"The volumes from actual outages in Libya and Iraq remain insufficient to offset the trend toward more ample supplies on surging North American production."

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