Singapore - Oil prices jumped and Asia stock prices fell on Tuesday as investors took fright at the unfolding crisis in Libya and turned to safe havens such as government bonds and gold, pushing the precious metal briefly to a seven-week high.
US crude futures hit a two-and-a-half year high on concern that violence in Libya could cut more of the Opec-member's output and that a similar story could play out in other top oil producers in North Africa and the Middle East.
Brent crude for April delivery rose $1.42 cents to $107.16 a barrel by 04:51 GMT, after rising as high as $108.18 in early trade. On Monday, Brent hit a two-and-a-half year high of $108.70.
"The market is very nervous over news of violence in Libya," said Yinxi Yu, a commodities analyst with Barclays Capital.
Japan's Nikkei 225 index closed down 1.8% and the MSCI's index of Asia Pacific shares outside Japan was also off about 1.8%.
Airline stocks tumbled across the region on the back of rising oil prices. Korean Air Line led losers, dropping more than 9%. Hong Kong's Cathay Pacific Airways fell more than 4% to a six-month low.
Major South Korean builders also slid as they put their Libya construction projects on hold. Hyundai E&C shares tumbled more than 9%, while Daewoo Engineering & Construction fell 6.3%.
Moody's Investors Service changed the outlook on Japan's Aa2 sovereign rating to negative from stable, warning that government policies may not be enough to rein in public debt.
"The market is not reacting much to the decision," said Takeshi Shibasaki, chief financial analyst at Mizuho Securities. "Standard and Poor's has already cut Japan's rating, and separately there already were expectations among participants that Moody's would do something."
Gold, a traditional refuge in times of tumult, extended gains and rose to its highest in seven weeks, lifting silver to its strongest level since 1980.
Spot gold rose $3.75 to $1 409.70 an ounce, but soon drifted back into negative territory. Silver jumped above $34 an ounce, its highest since 1980, before also falling back to around $33.33.
European stocks lost more than 1% on Monday on a combination of fears over Libya, where Muammar Gaddafi faced a mounting revolt against his 41-year rule, signs of imminent interest rate rises and more evidence of a poor earnings season.
US markets were closed Monday for a holiday but US stock futures were sharply lower, suggesting Wall Street will likely fall when they reopen on Tuesday.
"There are a lot of people in the marketplace waiting to get in at better levels," said Todd Martin, Asia equity strategist with Societe Generale in Hong Kong.
"Could we be in for a mid-cycle correction? Absolutely, but from what we are seeing - loose monetary policy and improvements in Europe - I don't see outrageously overconfident market participants yet. We are in the middle of a bull market. We are getting a proper correction here but long-only money will be buying into this," he said. In Asia, Martin recommended clients shifting more into equity markets in Japan, Korea and Taiwan, all of which he said were attractively valued.
The dollar climbed 0.5% against a basket of major currencies to 78.107 on the Libya violence.
One of the sharpest moves was in the New Zealand dollar, which slid 1.5% to $0.7523 after a strong quake hit New Zealand's second-biggest city of Christchurch.
Libyan forces loyal to Gaddafi, the world's second-longest-serving leader after the Sultan of Brunei, have fought an increasingly bloody battle to keep him in power with residents reporting gunfire in parts of the capital Tripoli and one political activist saying warplanes had bombed the city.
Security forces had killed dozens of protesters across the country, human rights groups and witnesses said, prompting widespread condemnation from world leaders.
US Treasuries jumped in Asia, with the yield on the 10-year benchmark falling 7 basis points to 3.515 %, and Japanese government bonds also rose, with 10-year futures up more than half a point.
The Christchurch quake killed at least 65 people, the country's prime minister said. New Zealand's benchmark NZX 50 index was down 0.67%.