MercoPress. South Atlantic News Agency

Pakistan instability impacts markets; boosts oil and gold

Benazir Bhutto was feted as a symbol of modernity

The assassination on Thursday of Pakistan's former Prime Minister Benazir Bhutto has sent stock markets falling and boosted prices for oil and gold. The main index on the New York Stock Exchange fell 192 points or 1.4% while prices of government bonds rose.

There are concerns that the economy of Pakistan could be unsettled by the assassination, and that the problems may spread to other nations. The Karachi Stock Exchange's main index is expected to fall on Friday morning. When there was a failed attack on Ms Bhutto in October, the market initially fell but recovered to end the day higher. Similarly, when a state of emergency was declared on 3 November, the market fell about 10%, but then regained most of its losses. So the question is whether the expected losses on Friday will be temporary. The worry for many analysts is that the unrest in Pakistan could have knock-on effects elsewhere in the region given the crucial role of the country. The Pakistani Army has long been the cohesive factor in the sixty years since independence. Political upheaval tends to raise gold and bond prices as people move money into relatively safe investments. Fears about unrest in the region also have a direct effect on oil prices, because Pakistan is an important ally of the West. US light, sweet crude for February delivery rose 65 cents to $96.62 a barrel on the New York Mercantile Exchange, having earlier climbed as high as $97.79. At the same time, gold rose to as much as $830.05 an ounce, which was its highest price since 26 November. Its price had already risen 30% this year, amid concern about the state of global markets. There was concern that market reaction could be even greater because trading is notoriously thin between Christmas and New Year, so effects tend to be amplified. However the assassination of Benazir Bhutto is likely to further complicate business relations between the U.S. and Pakistan, which is already a major manufacturer of clothing. U.S. corporations have poured billions of dollars into the country in recent years, both as direct investment and to pay for a rising tide of imported products. U.S. trade with Pakistan has risen sharply in recent years as manufacturers shifted more and more jobs to low-cost countries. Last year, the U.S. imported 3.67 billion US dollars of Pakistani goods, up from 2.25 billion five years earlier, according to the Census Bureau. Cotton goods such as clothes, thread and fabric made up the biggest share of imports. U.S. direct investment in Pakistan has also grown sharply. In the five years between 2001 and 2006, investment more than doubled. The new dollars really began to pour in starting in 2003, and by 2006 had reached 1.23 billion US dollars per year, according to the Commerce Department's Bureau of Economic Analysis.