Tuesday turned out to be another tough day for the markets as the ongoing euro debt crisis and heightened concern over an escalation of hostilities between North and South Korea gave wary investors even more reasons to feel nervous. In Europe, Spain’s Central Bank was forced to rescue one of the nation’s major banks over the weekend, drawing a warning from the International Monetary Fund. The IMF chided Spain for not acting sooner to shore up its banking system as the euro tumbled almost a full cent to US$1.2278 in mid-day trading in New York. Earlier in the day, the euro actually traded lower at $1.2178.
With investors already fleeing the euro, the rhetoric from the Koreas added even further to the market turmoil. North Korea moved to sever the few diplomatic ties already in place with its neighbor, as South Korea demanded an apology for the sinking of one if its battle ships on March 26th. Forty-six sailors died in the sinking that South Korea claims was dispatched with a North Korean torpedo.
Over the weekend, Secretary of State Hillary Clinton announced that the US Navy would take part in “exercises†in the disputed waters off the coast of South Korea. This is an obvious show of support for South Korea and could be seen as an act of aggression by China which supports the Kim Jong-il regime in North Korea. Concern that these actions could lead to actual conflict pushed an already struggling Korean Won three percent lower today to 1,251.10 won per US dollar.
