updated 12/28/2007 9:20:52 AM ET 2007-12-28T14:20:52

Most Asian markets fell Friday amid anxiety over the assassination of Pakistani opposition leader Benazir Bhutto and lingering worries about the outlook for the U.S. economy.

Major Market Indices

Bhutto’s death on Thursday, just ahead of Jan. 8 elections, sent shock waves through international markets on worries that global instability may follow, although some analysts said the impact is likely to be limited.

“The sudden event has caught worldwide attention because Pakistan is not any other developing country. It is a nuclear-power country. However, we view the current response to the event to be short-term,” Westcomb Securities said in a note.

While Pakistan’s stock market was closed, the market reaction in neighboring India was muted. Mumbai’s Sensex index dipped 9.77 points, or 0.05 percent, to close at 20,206.95.

In Tokyo, Japan’s stock market wrapped up the year with a sharp drop. The Nikkei 225 index fell 256.91 points, or 1.7 percent, to 15,307.78 points.

For the year, the Nikkei lost 11.1 percent, its first annual decline in five years.

Japanese investors remain worried about the American economy — a vital export market — amid the subprime mortgage crisis. A report from Goldman Sachs that said write-downs at U.S. banks, including Citigroup Inc., Merrill Lynch & Co. and JPMorgan Chase & Co., may deepen, helped to squelch sentiment.

Also, a less-than-expected rise in U.S. durable goods orders exacerbated concerns about the U.S. economy. In New York Thursday, the Dow Jones industrial average dropped 1.4 percent to 13,359.6.

The Nikkei is likely to stagnate during the first half of 2008 but has a chance of recovering once the U.S. credit crunch settles down later in the year, said Kenichiro Yoshida, senior economist at Mizuho Research Institute in Tokyo.

“A pessimistic view is prevalent about the Nikkei,” said Yoshida. “Looking ahead to next year, we must keep our eyes on Wall Street.”

Trading in Tokyo is scheduled to reopen on Jan. 4 after the New Year’s holidays.

Mainland Chinese markets ended a stellar — if turbulent — year Friday on a down note. The Shanghai Composite index fell 0.9 percent to 5,261.56 points on worries that authorities will raise interest rates or take other steps to cool the country’s blazing growth.

But for the year, the benchmark index surged nearly 97 percent, making it the world’s best-performing major stock index in 2007.

Looking ahead, concerns about tightening measures will likely restrain the market’s gains next year, analysts said.

“We expect the stock market will go up in 2008, but the magnitude of the growth will be less than that of 2006 and 2007,” said Gui Haoming, chief strategist of Shenyin & Wanguo Securities. “The economy will keep growing but there is uncertainty” about the “government’s macro-economic control.”

In Hong Kong, jitters over Bhutto’s assassination and continued concerns about the U.S. economy dragged down the benchmark Hang Seng Index by 472.33 points, or 1.7 percent, to 27,370.6 points.

“I would suggest investors to avoid buying any stocks now amid the uncertain market outlook,” said Castor Pang, a strategist at Sun Hung Kai Financial.

In Hong Kong, heavyweight China Mobile dropped 2.6 percent on concerns it may soon face a more competitive environment following a potential restructuring of China’s telecom sector. China Netcom fell 4 percent.

Hong Kong winds up the year’s trading on Monday and will be closed Tuesday for New Year’s Day, as will all other Asian markets.

In Tokyo currencies, the U.S. dollar was trading at 112.78 in late afternoon trading, down sharply from 113.69 yen late Thursday in New York.

Indonesian shares ended the year’s final trading session 0.2 percent lower at 2,745.826 in moderate volume. The benchmark index gained 52 percent for 2007.

Indian shares ended flat Friday, recovering from an early fall after Bhutto’s assassination spooked investors. The Sensex finished at 20,206.95 on the Bombay Stock Exchange, after trading as low as 20,022.88. On the rival National Stock Exchange, the S&P CNX Nifty also ended flat at 6,079.70.

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