Sensex pulls back as Korean fears ease, ends 266 pts down

Equity benchmarks crashed more than 3% during the day as North Korea fired artillery shells at South Korean islands, which triggered a bit of sell-off from foreign investors as well as shorts build up in afternoon trade.

However, the recovery in last one hour of trade suggested that the markets priced in all those jitters - the 30-share BSE Sensex recovered more than 349 points from day's low to close at 19,691.84, down 265.75 points or 1.33%. But there was quite a bit of volatility at end and the markets witnessed huge volume today.

North Korea on Tuesday fired dozens of artillery shells at a South Korean island, setting buildings on fire and prompting a return of fire by the South, Seoul's military and media reports said. A witness said residents of the island of Yeonpyeong, off the west coast of the peninsula near a disputed maritime border, had been evacuated.

South Korea's military confirmed the exchange of firing, without providing more details. Meanwhile, CNBC-TV18 reports suggest that at least 200 artillery shells hit the South Korean islands. South Korean officials have said the north artillery fire was in response to south drills while the military says it is on the highest non-war time alert.

The markets reacted very badly to this news - the Nifty touched an intraday low of 5824.95, but managed to show steep recovery at end as Korean fears eased and SBS-CNBC reports suggest that North Korea artillery fire stopped. Even the experts said the reaction was limited to Asia alone.

Alastair Newton of Nomura International said that investors have every right to react to such a situation. However, adding that market reaction is currently limited to Asia alone, Newton commented it is too early to tell what pattern of reaction markets will see. ''Markets should be cautious about newsflow,'' he warned.