Global equities slipped on Friday and safe-haven bonds and gold rose on fresh jitters about the impact of the global credit crunch and concern after the assassination of opposition leader Benazir Bhutto.
Fears that Bhutto's killing could trigger more turmoil in an already volatile region triggered a flight to quality assets in Asia. Stock markets there fell and investors sold dollars for yen in an unwinding of carry trades that typically thrive in calmer markets.
The FTSEurofirst 300 index of top European shares eased 0.4 percent to stand just 1.4 percent up on the year, its worst annual performance since 2002. In Asia, Japan's Nikkei Average, likely the worst performing index of 2007, closed down 1.7 percent in its final session of the year.
Pakistani markets were closed but the country saw a wave of violence, including a blast that killed three people. Stocks in neighbouring India fell 0.3 percent on worries the unrest in Pakistan might prompt investors to withdraw.
"Unrest in Pakistan is eroding market sentiment dramatically as Pakistan, unlike North Korea or Japan, really does have nuclear weapons," said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments. "The implication for stock markets is worries about higher oil prices and a weaker dollar."
The dollar hit a two-week low against the euro and Swiss franc after falling sharply on Thursday when a soft US durable goods report was seen heralding more interest rate cuts by the US Federal Reserve.
The data added to unease about the US and the global economy, with jobless claims also rising and the Wall Street Journal reporting that several banks, hard hit by the US subprime mortgage mess, were considering selling parts of their businesses.
In addition, a Goldman Sachs report said on Thursday several banks might face fourth quarter debt write-offs of over $33 billion - more than previously expected. "This report is not good news at all," one stock broker in Paris said, referring to the WSJ article. "With no corporate updates scheduled for the next three weeks the market will get its direction from (such) surprise bad news."
MSCI's broad index of shares excluding Japan fell 0.4 percent and emerging equities eased 0.2 percent. Oil, gold and bonds gained from the risk aversion.
Crude prices edged higher towards $97 a barrel within sight of its record high, further boosted by a report showing US crude stocks at their lowest in nearly three years. Gold traded just off overnight one-month highs of $830.05 an ounce.
"Oil is up on greater-than-anticipated stockdraws in crude oil and heating oil as we head into peak winter demand," said Harry Tchilinguirian, senior oil market analyst at BNP Paribas.
"Geopolitical tension....is a broader supportive factor." US Treasury notes edged higher, helped also by the rate cut expectations which analysts say will keep the market strong until the non-farm payrolls data next Friday.
The 10-year note was bid up 0.1719 points, with yields down 2.3 bps to 4.18 percent, down from 4.203 percent in late US trade. Two-year yields dipped to 3.20 percent from 3.218 percent in New York trade. Japanese government bond futures rallied 0.51 basis points to 1236.81 fell to 1.50 percent from 1.55 percent.
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