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South Korean political upheaval hits sentiment

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French no-confidence vote keeps investors on edge

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Euro stable but near two-year low touched last month

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Traders await cues from Powell, data on policy path

(Updates to Asia afternoon, adds European futures)

By Ankur Banerjee

SINGAPORE, Dec 4 (Reuters) - Asian equities stumbled on

Wednesday as traders contended with the political storm in South

Korea, where martial law was imposed and subsequently lifted

hours later, while a no-confidence vote in France put the euro

in the spotlight.

South Korea's won, buoyed by suspected

intervention, was stable but remained close to the two-year low

against the dollar that it hit late on Tuesday. The benchmark

KOSPI index was down 1.3%, taking its year-to-date

losses to more than 7% and making it the worst performing major

stock market in Asia this year.

That left the MSCI's broadest index of Asia-Pacific shares

outside Japan, which counts Samsung Electronics ( SSNLF )

as one of its top constituents, mainly flat as most

Asian markets aside from South Korea rose.

South Korean President Yoon Suk Yeol said on Wednesday he

would lift a surprise martial law declaration he had imposed

just hours before, backing down in a standoff with parliament

which roundly rejected his attempt to ban political activity.

"Martial law itself has been lifted but this incident

creates more uncertainty in the political landscape and the

economy," ING senior economist Min Joo Kang said.

"We are concerned that these events could impact South

Korea's sovereign credit rating, although this is uncertain at

this stage. However, this is a scenario that could happen."

South Korea's finance ministry said it was prepared to

deploy unlimited liquidity into financial markets if needed,

with the Yonhap news agency saying the financial regulator was

ready to deploy 10 trillion won ($7.07 billion) in a stock

market stabilisation fund.

"A bit of uncertainty here given how the events played ...

that can fuel some rush to safety. But Korean authorities appear

to be moving quickly to stabilise markets, and the impact is

likely to be short-lived," Saxo's chief investment strategist

Charu Chanana said.

Still, the jolt to the market from East Asia stoked further

worries of uncertainties around the globe, with investors

already reeling from political turmoil in France that has

weighed on the euro, which stood at $1.051675.

The single currency is down 4% since the start of November,

when investors started bracing for widely expected tariff-heavy

policies from the incoming Trump administration.

French bond futures fell 0.11% while European stock

futures were little changed ahead of French lawmakers'

vote on Wednesday on no-confidence motions, which are all but

certain to oust the fragile coalition of Prime Minister Michel

Barnier.

"If the government collapses, emergency legislation will

likely be adopted to avoid a government shutdown ... the spread

between French and German 10-year government bond yields can

further move against the euro," said Carol Kong, currency

strategist at Commonwealth Bank of Australia.

On the macro side, investors are hoping for more cues to

gauge the policy path the Federal Reserve will likely take next

year, with a much-anticipated November employment report due on

Friday.

U.S. job openings increased solidly in October while layoffs

dropped by the most in 1-1/2 years, data showed on Tuesday,

suggesting the labour market continued to slow in an orderly

fashion even as another survey showed employers were hesitant to

hire more workers.

Markets are now ascribing a 72% chance of a 25 basis point

cut this month, with 80 bps of cuts expected by the end of next

year.

U.S. central bankers said they continue to believe inflation

is heading down to their 2% target and signalled support for

further rate cuts ahead, but none pushed strongly for or against

doing so when they next meet to set rates in two weeks.

The spotlight now turns to Fed Chair Jerome Powell, who will

give on Wednesday what are expected to be his last public

remarks ahead of the meeting.

The dollar index, which measures the U.S. currency

against six rivals, was at 106.3. The Australian dollar

fell to four-month lows as surprisingly soft economic data led

markets to bring forward the likely timing of future rate cuts.

The Aussie was last down 0.7% at $0.6442.

Oil prices inched higher after gaining more than 2% in the

previous session as Israel threatened to attack the Lebanese

state if a truce with Hezbollah collapses, and as investors

positioned for OPEC+ to announce an extension of supply cuts

this week.