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. Last Updated: 07/27/2016

Markets Tumble Ahead of UN Report on Iraq

LONDON -- War fears sent stocks and the dollar tumbling and propelled gold to its highest level in six years Monday as markets across the world fretted ahead of a key United Nations weapons report on Iraq.

Oil and government bonds rose as investors awaited UN chief arms inspector Hans Blix's report.

Analysts say that while the inspectors may win more time to carry out their work, they expect U.S. President George W. Bush to hold the line that the United States will go to war against Iraq with or without its traditional allies when he makes his annual State of the Union address Tuesday.

Markets fear signs of disagreement between key Western allies, particularly ahead of the meeting of the Group of Seven leading industrial nations' finance ministers Feb. 21 and 22, which leaves little chance of any meaningful cooperation on the ailing global economy.

U.S. Secretary of State Colin Powell said over the weekend the United States was prepared to attack without the support of allies.

"The bottom line seems to be that the weapons inspectors will be given a little bit more time but maybe only a month and that the U.S. will go it alone if everyone else remains on the sidelines," said Rob Hayward, the senior currency strategist at ABN AMRO.

European stocks tumbled to their lowest levels in nearly six years as large investors dumped chunks of their equity holdings.

"We are floundering in the dark, and it's not much fun," said Richard Champion, a European fund manager at Pavilion Asset Management.

"What one hears in the market is there is a lot of program desk activity, which indicates institutionals are cutting equity exposure," Champion said.

The FTSE Eurotop 300 index was down 3.07 percent by early afternoon and the narrower DJ Euro STOXX 50 index was off 3.25 percent.

U.S. stock index futures were lower, suggesting Wall Street would add to its Friday fall.

The Dow Jones Industrial Average ended down 2.85 percent Friday, while the tech-heavy Nasdaq closed down 3.32 percent to its lowest level this month.

Asian shares also fell Monday. Tokyo's Nikkei closed down 1.4 percent and the broader TOPIX index ended down 1.32 percent.

The broad Morgan Stanley Asia Pacific Free Index was down 1.2 percent at 1140 GMT.

Gold bullion, seen as a safe place for investors to put their money in turbulent times, stormed to a six-year high above $370 an ounce in European trade.

Spot gold peaked at $372.55 an ounce, well above New York's close at $369.10 and its highest since December 1996, before pulling back slightly later in the day.

"Hawkish comment from Colin Powell and apprehension ahead of Hans Blix's presentation to the UN Security Council today will keep the gold pot boiling," Standard Bank London said in a report.

The price of gold is 30 percent higher than this time last year.

The euro extended last week's gains to reach its highest against the dollar for more than three years.

Sterling also hit a three-year high against the greenback, which fell to a new four-year low against the Swiss franc.

The single currency was last at $1.0892, off a high of $1.0907.

"The euro broke $1.0850, and it just keeps going up. People like to sell dollars before the [UN] report," a London-based bank dealer said.

"Uncertainty factors are rolling at the moment and it looks like a one-way bet now."

Yields on safe-haven euro zone government bonds fell close to Friday's 3 1/2 year lows.

Two-year yields were 2.3 basis points lower at 2.563 percent.

Ten-year yields were down 1.8 basis points at 3.995 percent.