North Korea missile launch weighs on Asia markets, gold inches up

Hong Kong: Most Asian stock markets turned lower on Friday after another missile launch by North Korea stoked the possibility of fresh geopolitical tensions while the pound held its gains on bets that British interest rates will rise next month.

Pyongyang launched its second rocket over Japan's Hokkaido in as many months, just days after the UN Security Council imposed sanctions in response to its nuclear test.

Analysts said the rocket travelled further than any other it has fired, adding to concerns about the North's ability to strike the US mainland with an atomic bomb.

The news rattled regional markets, which had started to enjoy a return to optimism after last week's global sell-off sparked by the nuclear test that fanned fears of a regional conflict.

Seoul fell 0.4 percent while the Korean won also dipped 0.1 percent but Tokyo edged up 0.1 percent on yen weakness.

Hong Kong sank 0.7 percent, Shanghai shed 0.4 percent and Singapore lost 0.5 percent while Sydney was 0.6 percent off. Wellington, Taipei and Manila were also lower.

However, while investors ran for cover, analysts were less startled by the latest move.

"I wouldn't necessarily say this is an escalation," James Soutter, portfolio manager at K2 Asset Management in Melbourne, told Bloomberg News.

"This is more of a continuance of provocation. Hence markets won't like it, but I don't think it's necessarily the precursor to a sustained market pullback."

POUND HOLDS GAINS

On currency markets the pound maintained its strength against the dollar after the Bank of England (BoE) surprised everyone with a hawkish statement in its latest policy meeting.

While it left borrowing costs unchanged, it's governor Mark Carney hinted at an lift next month by saying the "possibility is definitely increased".

His comments came after data this week showed inflation surged last month to 2.9 percent, well up from the BoE's two percent target, as the weaker pound made goods more expensive.

On the day the new ten pound note went into circulation, sterling soared to more than one-year highs above US$1.34 on Thursday, from around US$1.32 earlier, with a strong US inflation print unable to temper sterling rally. The British unit dipped marginally in Asia.

The possible BoE move to tightening comes as central banks consider similar moves as the world economy slowly improves.

European Central Bank officials' plans to wind-down its crisis-era stimulus has sent the euro flying, while Canada announced a surprise hike earlier this month.

The shift to tighter policies has beared on the dollar, which for years benefited from a US recovery that fuelled talk the Federal Reserve would lift rates.

GOLD INCHES UP

Gold inched up on Friday as North Korea`s latest missile launch over Japan triggered safe-haven buying, but gains were limited as strong U.S. inflation data raised the spectre of another interest rate hike.

Spot gold edged up 0.1 percent to $1,330.79 an ounce by 0321 GMT, after dropping to its lowest since Aug. 31 at $1,315.71 in the previous session.

The metal was, however, down 1 percent for the week, and on track to mark its first weekly decline in four.

U.S. gold futures for December delivery gained 0.4 percent to $1,334.80 an ounce.

With Agency Inputs