Asian shares fall as Malaysia jet downing hits sentiment

Asian shares sagged in early trading and a drop in Treasury yields pressured the

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dollar after news of a downed Malaysian airlines jet at the Ukraine-Russia border sent investors scurrying into defensive assets.

Wall Street had its worst day since April after news that nearly 300 people died in the crash, which a Ukrainian official said was caused by a missile fired at the plane.

Both sides denied involvement in the crash, which came just a day after the US ratcheted up sanctions against Moscow.

"The prospect of further international punishment for Russia on the world's stage, if indeed the downing of the Malaysian airliner had anything to do with its forces, clearly shocked speculative forces into seeking defensive positions immediately," Andrew Wilkinson, chief market analyst at Interactive Brokers LLC, said in a note to clients.

He noted that traders piled into bearish one-day options on Russian shares expiring Friday.

Equities losses deepened in the last hour of trading after Israeli Prime Minister Benjamin Netanyahu instructed the military to begin a ground offensive in Gaza.

MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.4%. Japan's Nikkei stock average dropped 1.3%.

Even before news of the downed jet broke, sentiment was already fragile after a weak reading on US housing starts for June.

The benchmark 10-year Treasury yield stood at 2.453% in Asia, down from Thursday's US close of 2.475%.

The dollar was steady at 101.21 yen after sliding nearly 0.5% overnight to post its biggest one-day loss against the yen, a perennial safe-haven play, since early April. A break below 101.06 yen would take the greenback to a two-month low.

"Put simply US Treasury yields declined on heightened geopolitical woes and hurt dollar/yen, which has a high correlation with yields," said Masafumi Yamamoto, market strategist at Praevidentia Strategy in Tokyo. Bond yields move in opposite direction to bond prices, which went up as investors sought safer assets.

The euro, which has lost roughly 0.9% against the yen so far this week, wallowed close to a five-month low of 136.715 yen touched earlier in the session.

The euro hovered within a short distance of $1.3512, its lowest in a month against the US currency.

In commodities trading, US crude oil extended gains by about 0.6% on the day to $103.85 a barrel, after jumping by more than $2 on Thursday. Russia pumps more than a tenth of the world's crude.

Gold also soared on safe-haven bids and was last up 0.2% at $1,320.60 an ounce.

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