South Korea’s stocks and won fell after North Korea said it had successfully tested a nuclear weapon and Yonhap News reported that the communist nation also launched a short-range missile.

The Kospi stock index declined as much as 6.3 percent, before paring its losses to close down 0.2 percent. The North’s official Korean Central News Agency said the successful underground test would “bolster its nuclear deterrent for self defense.” The won also pared losses to close 0.1 percent weaker as South Korea said it would discuss any response with the U.S., which may include sanctions.

The test may intensify tension in the Korean peninsula and is the latest blow to efforts to persuade the impoverished North to abandon nuclear weapons development in exchange for economic aid. The Kospi fell as much as 3.6 percent and closed 2.4 percent lower on Oct. 9, 2006, when North Korea conducted its first nuclear test. The gauge rose 0.7 percent the next day.

The impact “from such news is usually short-lived and this is likely to be the case again unless we see a clear change in the political scene, which I doubt at this stage,” said Thomas Harr, a currency strategist at Standard Chartered Plc in Singapore.  Read the rest of this entry »