Japanese, South Korean Stocks Fall in Wake of U.S. Drop

TOKYO, June 9 -- Stock markets slid in Japan and South Korea on Monday morning, as Asia reacted to a wrenching Wall Street sell-off on Friday.

Stock exchanges in China, Hong Kong and Australia were closed for a holiday, but Japan's Nikkei average was off about 2 percent in early trading Monday, as was the Kospi index in South Korea.

"The market will go down, given what happened on Friday, but I don't think in the end it will be as dramatic as in the United States," said Hiromichi Shirakawa, chief economist at Credit Suisse Securities in Japan. "What drove the U.S. market decline has already been digested here. I think people here feel that the American market panicked on the news."

The fall in Asian markets followed a nose dive on Wall Street, where the Dow Jones industrial average fell 394.64 points, or 3.13 percent. It was steepest single-day drop in more than 15 months.

The fall in New York was triggered by the dovetailing of an unprecedented jump in oil prices, a sliding dollar and the biggest leap in unemployment rates in more than two decades.

Crude oil prices ended Friday at $138.54 a barrel, after touching a trading record of $139. It was the biggest one-day increase ever in dollar terms.

Over the weekend, the U.S. average price of regular gasoline rose above $4 a gallon for the first time, according to AAA and the Oil Price Information Service.

Two major investment banks are predicting that the price of oil will rise even more. With continued strong demand in Asia, Morgan Stanley said, prices will hit $150 by July 4. Goldman Sachs has said that oil prices will average $141 a barrel in the second half of 2008.

At a meeting in Japan over the weekend, energy ministers from five major oil-consuming nations warned oil producers that if they do not pump more crude, they may cause a worldwide recession.

Officials from the United States, China, Japan, South Korea and India failed, however, to agree on a cut in government fuel subsidies. Despite U.S. insistence that the subsidies increase global demand, the other countries agreed only to say that a phased removal of subsidies would be "desirable."

South Korea quickly moved in the opposite direction. It announced on Monday a new $10 billion subsidy to soften the impact of rising energy prices.

In the United States, the jobless rate for May jumped 0.5 percentage points over April, as the number of jobs fell by 49,000. It was the fifth consecutive monthly decline.

Since the first of the year, 324,000 jobs have disappeared, with unemployment spreading among men, women, whites and blacks.

Unemployment in Asia has not risen to the same extent, at least so far, which may explain why markets in the region moved without obvious panic on Monday.

"People are concerned about the high oil price," said Shirakawa at Credit Suisse in Tokyo. "But the market feels that the economies in the up-and-coming markets are strong."

Special correspondent Akiko Yamamoto contributed to this report.