* U.S. lays groundwork for possible action against Syrian
* Yen broadly firmer; Turkish lira, Indian rupee hit record
* Brent oil nears 6-month high, over $112 a barrel
* European equities down 1.2 pct after sharp falls in Asia
By Richard Hubbard
LONDON, Aug 27 Uncertainty about the possibility
of Western military action against the Syrian government hit
shares worldwide on Tuesday, sent many emerging market
currencies to record lows and boosted assets such as yen and
U.S. stock index futures and a rise in U.S.
government debt prices signalled that the flight
to safety could gather momentum when Wall Street opened.
Dealers said the moves so far, spurred by reports from
Washington that a strike may be imminent, were not yet on a huge
scale as investors are waiting to see how the situation unfolds.
"The full scope of this crisis is difficult to predict at
this point, so it becomes an excuse for investors to cash in
some of the recent gains," said David Thebault, head of
quantitative sales trading, at Global Equities.
U.S. Secretary of State John Kerry, in the most forceful
reaction yet to the Aug. 21 gas attack outside Damascus, set the
stage for possible action when he said President Barack Obama
"believes there must be accountability for those who would use
the world's most heinous weapons against the world's most
Kerry said Obama was consulting with allies before he
decides on any retaliatory strike. While Britain's Prime
Minister David Cameron added to the growing sense of imminent
action by recalling the country's parliamentarians from their
The shift into safer assets has benefited the yen most,
leaving the greenback down 0.7 percent at just under 98 yen
and the Australian dollar down 1.6 percent to 87.50 yen
The euro fell 1.0 percent against the Japanese currency but
was slightly lower against the dollar at $1.3330.
Emerging market currencies such as the Turkish lira and the
Indian rupee bore the brunt of the flight as doubts over the
Syrian situation added to pressure from investors' positioning
for an end to the supply of cheap dollars from the U.S. Federal
Reserves monetary stimulus.
The Indian rupee lost as much as 2.5 percent to
reach record low of 65.93 per dollar while Turkey's lira
weakened to 2.03 to the dollar - both were record
lows. Turkey's share index also slid to a year low.
OIL AND SHARES
Brent crude oil for October was over $112 a barrel,
nearly a six month high, while U.S. crude was up $1.03 to
$106.95 a barrel.
Russia, which as the world's top energy producer normally
benefits from stronger oil prices, saw the rouble hit a
four-year low against the dollar-euro basket, on concern over
the situation in Syria.
As Syria's key ally and arms supplier, Russia has urged
Washington not to use military force against President Bashar
al-Assad's government. Traders said its response to any U.S.
move against Syria would be key to whether the current shift
into safer assets turned into a major flood.
European shares were down 1.2 percent by midday, matching an
earlier drop across Asian markets outside Japan.
Tokyo's Nikkei ended 0.7 percent lower.
That left the MSCI all-country world equity index
down around 0.5 percent for a second day of
falls, though it remains off its lows for the month.
More evidence that the recovery in Europe's largest economy,
Germany, was gathering momentum in the latest monthly survey of
sentiment by the influential Ifo think-tank had little impact on
The Ifo institute said its business climate index, based on
a survey of some 7,000 firms, rose to a better-than-forecast
107.5 in August, its fourth consecutive rise and the highest
level since April 2012.
Germany's main DAX index was down 1.6 percent after
the surprisingly strong data, with key French and
Italian indexes both around 1.5 percent lower.
Italian shares were experiencing their second day of heavy
selling after falling about 0.8 percent on Monday on concern
over the stability of the ruling coalition, with Silvio
Berlusconi's centre-right party threatening to bring down the
The share sell-off in Europe had only minimal impact on
10-year German bond yields, which were a touch
lower at 1.87 percent - just off 1-1/2 year highs of 1.98
percent hit last week.
German yields have risen sharply in recent weeks on
expectations that an improved global economic outlook could
prompt the Federal Reserve to reduce monetary stimulus in
September, while other major central banks might struggle to
keep their promise to keep interest rates low for a long time.
Spot gold rose to its highest since early June around
$1,420 an ounce. Gold has rallied more than $200 since late
June when prices troughed at three-year lows.