* Brent crude jumps to 6-month peak, gold at 3-1/2 month
* World shares fall to 7-week low, U.S. stocks seen steadier
* Turkish lira, Indian rupee hit record lows
By Richard Hubbard
LONDON, Aug 28 The prospect of Western military
action against Syria hit emerging market assets hard, pushed oil
to a six-month high and sent world shares sliding for a second
day on Wednesday.
In the scramble for safety investors turned to gold, which
hit a 3-1/2 month peak above $1,430 an ounce, and bought the
dollar on a view that it was the ultimate refuge from the risks
of intensified upheaval in the Middle East.
Emerging markets, such as Syria's neighbour Turkey, already
being pummelled by an expected reduction in U.S. stimulus
measures, took further hits. The Turkish lira and India's rupee
both touched record lows against the dollar.
The moves stem from signs the United States and its allies
are gearing up for a strike against President Bashar al-Assad's
forces, blamed for last week's chemical weapons attacks, which
traders fear could prompt retaliatory action, engulfing a region
which supplies a third of the world's oil.
"The market feels an attack on Syria is highly probable but
what they're concerned about is the retaliation," said Mike
Gallagher, managing director of IDEAglobal.
"We could see a wider spillover into the region which could
easily push oil prices up, at least temporarily, to $120 or $125
a barrel," Gallagher said.
At one point those concerns had pushed Brent crude above
$117 a barrel and the U.S. benchmark to its
highest level in over two years, though both subsequently eased
off these highs in volatile trading.
In the Middle East, Dubai's stock index shed 1.4
percent to add to the 7.0 percent loss recorded on Tuesday,
leaving it near a six-week low.
Heavy selling earlier across Asian markets, particularly in
southeast Asia sent MSCI's main emerging equity index
down 0.7 percent and left its world equity index
, which tracks share moves in 45 countries, down
0.5 percent at seven-week lows.
U.S. stock index futures pointed to some
respite when trading opens after Wall Street stocks suffered
their worst day since late June on Tuesday.
EUROPE TAKES PROFITS
In Europe, stocks were down for a third consecutive day as
the concerns over Syria added to a political crisis in Italy and
the worries abut Fed tapering to fuel profit taking on an 8
percent rally seen since late June.
The FTSEurofirst 300 index of top European shares
was down 0.4 percent by later morning having posted its largest
daily drop in two months on Tuesday.
"The market seems to be looking to trade down on a
combination of profit-taking from the strong move into August
and the news on Syria and contagion effects in the Middle East,"
said Atif Latif, director at Guardian stockbrokers.
The euro was down 0.3 percent against the dollar at $1.3355
but was slightly firmer against the yen at 130.
Amid the worries over Syria investors largely shrugged off
data showing euro zone bank lending contracting further in July,
which highlighted the fragility of the bloc's nascent recovery
and should keep pressure on the European Central Bank to
maintain its expansive monetary policy.
However, flight to quality demand buoyed German government
bonds, sending the 10-year Bund yield down 3 basis
points to 1.824 percent as it moves further away from Friday's
1-1/2 year highs of 1.98 percent.
Britain's pound meanwhile slipped against both the dollar
and the euro as investors focused on a speech in which new Bank
of England governor Mark Carney is likely to reaffirm his
intention to keep interest rates low until end-2016.
Many anticipate that Carney will try and talk down a sharp
rise in UK money market rates following a run of strong economic
data and reiterate that the bank rate will stay at a record low
of 0.5 percent until the jobless rate falls to 7 percent.