SEOUL, South Korea (AP) -- Asian stock markets fell Monday amid investor unease as South Korea went ahead with a military drill on a frontline island despite threats of North Korean retaliation.
Inter-Korean tensions, a longtime geopolitical risk in the region, have spiked to dangerous levels since Pyongyang launched a deadly artillery barrage on the South Korean island of Yeonpyeong last month in response to military exercises by Seoul.
North Korea had warned the South of "catastrophe" if it went ahead with a new round of live-fire drills delayed by bad weather. Seoul finally launched the exercise on the island Monday and there were no immediate signs of any North Korean response.
South Korea's benchmark Kospi closed 0.3 percent lower to 2,020.28, nearly erasing earlier declines of as much as 1.5 percent. The won was little changed at 1,149.40 to the dollar. The country's financial markets often show resilience during times of tension with North Korea.
Still, the uncertainty was seen as a factor in dragging Asian markets lower.
"It's something that can go very bad," Jackson Wong, vice president at Tanrich Securities in Hong Kong, said of the Korean tensions.
South Korean technology stocks were mixed. LG Display Co., which has an LCD factory near the heavily fortified land border with North Korea, fell 2.6 percent. LG Electronics Inc. declined 0.9 percent. Market bellwether Samsung Electronics Co., however, managed a gain of 0.7 percent.
The military tensions hurt sentiment across the region.
Japan's Nikkei 225 index fell 0.9 percent to 10,216.41 and Hong Kong's Hang Seng index shed 0.8 percent to 22,545.11.
The Shanghai Composite index slid 1.2 percent to 2,858.46 amid renewed worries the central bank will soon hike interest rates to control rising inflation. Australia's S&P/ASX 200 shed 0.5 percent to 4,829.20.
Benchmarks in Thailand, Singapore, Taiwan, New Zealand also retreated, while those in India and the Philippines rose.
Ongoing worries about Europe's debt problems weighed on exporter shares in Tokyo as well. Kyocera Corp. fell 1.2 percent, while Ricoh Co. declined 2 percent.
Toyota Motor Corp. was off 0.8 percent after the Nikkei financial daily reported that the world's biggest automaker could face a double-digit decline in Japan sales next year.
In New York Friday, stocks ended flat as investors shrugged off encouraging economic signs and a tax-cut package expected to lift economic growth. The Dow Jones industrial average fell 7.34 points, or 0.1 percent, to close at 11,491.91.
In currencies, the dollar fell to 83.87 yen from 83.96 yen late Friday. The euro fell to $1.3158 from $1.3186.
Benchmark crude for January delivery was up 3 cents at $88.05 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose 34 cents to settle at $88.02 on Friday.