Investors in the region have been grateful for the positive vibes the United States has sent global markets with recent cuts in interest rates. Now they are hoping it will not be blown up by a military attack on Iraq.
President Bill Clinton has increased the US military presence in the Middle East and threatened to attack Iraq if Baghdad continued to intervene in United Nations weapons inspections.
Analysts say such an attack could knock markets worldwide initially and send investors heading for 'safe havens' such as US dollars and bonds.
'It would reduce capital inflows to this region,' said Credit Suisse First Boston senior regional economist Dong Tao.
'You'd probably see further weakness of the yen which would lead to turbulence in both currency and equity markets.' Morgan Stanley Dean Witter senior regional economist Tim Condon said a prolonged military standoff would see a rise in oil prices, pressuring asset prices regionwide.
On Friday, oil prices rose in London as traders carried out short-covering with an eye on the chances of US-led bombing raids against oil-rich Iraq, reports said.