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Global markets lower as Switzerland's surprise currency move stuns investors

SEOUL, South Korea – Global markets were lower Friday after a surprise move by the Swiss National Bank to abandon its efforts to keep its currency artificially cheap shocked the market.

KEEPING SCORE: Britain’s FTSE 100 edged down 0.2 per cent to 6,485.13 and Germany’s DAX fell 0.5 per cent to 9,983.94. France’s CAC 40 was down 0.1 per cent at 4,320.42. Futures showed that Wall Street would extend its losses. S&P 500 and Dow futures both fell 0.4 per cent.

ASIA’S DAY: Japan’s Nikkei 225 dropped 1.4 per cent to 16,864.16 while South Korea’s Kospi fell 1.4 per cent to 1,888.13. Hong Kong’s Hang Seng index was down 1 per cent at 24,103.52. Australia’s S&P/ASX 200 declined 0.6 per cent to 5,299.20. Stocks in Singapore, New Zealand and Taiwan also fell.

SWISS SHOCK: The Swiss National Bank, or SNB, said early Thursday that it decided to ditch an increasingly expensive policy to cap the rise of the Swiss franc. After the announcement, the Swiss franc spiked against the euro and the dollar while Swiss stocks tanked. The SNB had prevented the euro from trading below 1.20 francs. But the cost of retaining the policy for the central bank by buying euros or selling francs has risen as the outlook for the euro darkened.

ANALYST’S TAKE: “At least for the short term the Swiss bank action has opened up a new front of financial markets risk,” said Ric Spooner, chief market analyst at CMC Markets. “The Swiss bank’s move last night is a reminder to investors and traders that central bank action is a source of market risk given the scale of their activities in recent years and its impact on economic activity.”

BROKERS BROKE: Global Brokers NZ Ltd., a small currency trading house in New Zealand, was among the first to say that it was closing its doors as the global economy felt the fallouts from the Swiss National Bank’s abrupt policy reversal. Global Brokers Director David Johnson said in an announcement on the website of Excel Markets, its affiliate, that the trading house sustained a total loss of operational capital and it can no longer meet the regulatory minimum to continue business. The majority of clients in a franc position sustained losses amounting to far greater than their account equity, he said.

OIL: The benchmark U.S. crude futures contract was up 58 cents at $46.81 a barrel in electronic NYMEX trading. The contract tumbled $2.23 to settle at $46.25 in New York on Thursday. Brent crude, a benchmark for international oils, rose 99 cents to $49.26 a barrel in London.

CURRENCIES: The dollar edged up to 116.504 yen from 116.207 yen while the euro rose to $1.1631 from $1.1619.