Markets shaken as fighting breaks out in Korea

North Korean artillery blazed on Tuesday and markets got pounded. Continuing concerns over European sovereign debt didn't help.

Bloomberg reports the market action:

Stocks sank, dragging the MSCI Emerging Markets Index down the most in five months, while the dollar and the Swiss franc rallied as fighting broke out between North and South Korea and concern grew Europe’s debt crisis will spread. Copper slid as China’s banks approached lending limits.

The MSCI gauge of stocks in developing nations lost 2.6 percent and the Standard & Poor’s 500 Index slid 1.4 percent at 4 p.m. in New York. The dollar and franc appreciated against most peers. South Korean won forwards slipped the most in six months. Ten-year Treasury yields decreased 4 basis points, while credit default swaps protecting European government debt rose to a record. Copper, lead and zinc slumped, while gold advanced.

However, economic reports on Tuesday were once again quite positive.

Purchasing managers indices in the euro area jumped in November. From Bloomberg:

Growth in Europe’s services and manufacturing industries unexpectedly accelerated for the first time in four months in November as companies weathered the debt crisis and cooling global growth.

A composite index based on a survey of euro-area purchasing managers in both industries advanced to 55.4 from 53.8 in the previous month, London-based Markit Economics said today in an initial estimate. A reading above 50 indicates expansion.

In the US, third quarter growth has been revised upward. Again from Bloomberg:

The U.S. economy grew more than previously calculated in the third quarter, led by stronger consumer spending and fueled by labor income gains that may stoke demand into 2011.

The revised 2.5 percent increase in gross domestic product compares with a 2 percent estimate issued last month and a 1.7 percent rise in the second quarter, figures from the Commerce Department showed today in Washington. Consumer purchases rose at the fastest pace since the last three months of 2006.

The Federal Reserve, however, recently made revisions to its projections in the opposite direction. From Reuters:

A weaker economic outlook prompted Federal Reserve officials to consider more radical steps to aid the economy before settling on $600 billion in bond purchases earlier this month...

Looking toward the future, Fed officials' estimates for growth in 2011 ranged from 3.0 percent to 3.6 percent, down considerably from June estimates of 3.5 percent to 4.2 percent. Unemployment will remain close to 9.0 percent for much of next year and could still be above 8.0 percent at the end of 2012.

Continuing weakness in the US housing market no doubt was a factor that Fed officials took into account. From Bloomberg:

Sales of existing homes fell more than forecast in October as foreclosure moratoriums and a lack of credit disrupted the U.S. housing market.

Purchases decreased 2.2 percent to a 4.43 million annual rate from 4.53 million in September, the National Association of Realtors said today in Washington. Economists projected sales would decline to a 4.48 million pace, according to the median forecast in a Bloomberg News survey. The median price fell 0.9 percent from a year earlier.