By Shri Navaratnam
SINGAPORE -- Asian stock markets were mostly lower on Monday as sentiment took a hit ahead of South Korea's planned military drill on its Yeonpyeong island later in the day, prompting fears of a possible retaliation from North Korea.
"This could be another one-off razzle-dazzle threat by the North, unless it results in lives lost, which could heighten retaliatory actions," said Gabriel Yap, chairman of investment firm GCP Global based in Singapore.
South Korea's Kospi Composite fell 1.0%, Japan's Nikkei Stock Average was off 1.1% and Australia's S&P/ASX 200 was down 0.3%. The Shanghai Composite Index was down 3.2% while Hong Kong's Hang Seng Index was down 1.2%.
Dow Jones Industrial Average futures were down one point in screen trade.
Regional sentiment was hit by news South Korea is pushing ahead with a U.S.-backed artillery test, prompting an emergency session of the U.N. Security Council at Russia's request.
South Korea's Yonhap news agency earlier reported, citing the country's defense ministry, that the military will start a live-fire drill after 0400 GMT, for about two hours.
Last month North Korean forces shelled Yeonpyeong island, killing four South Koreans, two of them civilians. The military has told civilians on five South Korea border islands to take shelter.
The Seoul market was rattled by concerns that North Korea may respond to the tests aggressively.
But analysts said the market fallout from the increased sabre rattling to be temporary. "Considering that foreign investment and institutions are net buyers, the negative impact is unlikely to continue for too long," said Shinhan Investment Corp analyst Seo Joon-hyeok.
Korea Investment & Securities analyst Kim Chul-jung said: "I think the market will recover when the drill ends with no particular incidents."
Samsung Electronics was off 0.8%, Hynic Semiconductor fell 2.7% and LG Electronics lost 2.1%.
Shipbuilding stocks were supporting the benchmark index on fresh order hopes. Samsung Heavy Industries was up 4.2% and Daewoo Shipbuilding & Marine Engineering added 1.3%, while large-cap financials also rose as losses earlier in the session spurred some bargain-hunting, with KB Financial up 0.8% and Woori Finance added 3.5%.
The Tokyo market was weighed by geopolitical tensions on the Korean peninsula.
"Investors are slightly nervous about what kind of response North Korea will take following the firing drill," said Toshikazu Horiuchi, an equity strategist at Cosmo Securities. But the downside risk will likely be limited, he said, adding that the market's focus will likely shift to a slew of U.S. economic data due before Christmas, including personal consumption figures.
Aeon was up 0.8% after the Nikkei reported the Japanese retailer is likely to have posted a 70% on-year increase in group operating profit to Y93 billion for the nine months ended Nov. 30.
Most technology stocks were down, with Nikon off 0.3%, Sony off 0.1% and Sharp down 0.3%. Car makers were mixed, with Honda Motor up 0.9%, while Toyota was off 0.4%. Toyota appeared to be pressured by a Nikkei report on Saturday that the automaker is anticipating a drop of more than 10% in domestic car sales in 2011, due to the expiry of government subsidies for fuel-efficient vehicles.
