South Korean stock and bond futures fell sharply and the won dipped in offshore forward trading on Tuesday after artillery shells fired by North Korea wounded several people and damaged buildings on a South Korean island near the border.
Residents from the island, about 10 km (6 miles) from the maritime border with the North, were fleeing on fishing boats, Seoul media reported, and witnesses said several civilians and soldiers were wounded in the incident.
The KOSPI 200 index futures for December delivery fell 2.44 per cent, while 1-month won forward fell more than 4 percent at one point in offshore trading, although recovering much of the losses later.
President Lee Myung-bak convened an emergency meeting of security ministers, while the central bank will hold a meeting of senior officials from 0900 GMT to assess possible market impacts. Officials said it was not to review interest rates.
Analysts said the additional impact on local markets from the attacks - which were reported after the trading hours ended on spot markets - could be bigger than during previous conflicts because the latest incident involved damage to civilian installations.
"The North's provocation historically sent shock waves to the stock market, which has subsequently returned to normal," said Lee Jae-man, analyst at Tong Yang Securities.
"It will inevitably affect the local stock market - especially as it comes as foreigner buying is slowing and geographical risks are mounting."
But some other analysts said the impact could be limited or short-lived unless the conflict spread and continued.
South and North Korea have been technically at war for more than half a century because their 1950-53 conflict ended only in a truce.
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