Asian stocks have taken a battering

Markets across Asia took a fresh pounding on Friday as fears that North Korea has nuclear weapons added to existing worries about the Sars epidemic.

According to US military sources, talks in Beijing over North Korea's nuclear build-up have produced an admission from Pyongyang that its plutonium programme has produced workable weapons.

Although there was no confirmation from North Korea, the revelation panicked traders in the South Korean capital of Seoul.

The South Korean Kospi index finished down 3.7% at 566.3, its fifth straight day of losses, exacerbated by the economic impact of the Sars virus.

Japan's stock market was also in trouble, although investors attributed its reverse more to the shock of massive losses at electronics and entertainment giant Sony, whose shares have lost more than an eighth of their value in a single day.

In Taiwan, where thousands of staff, patients and visitors were being locked inside quarantined hospitals, the Taiex index finished more than 3% lower after a 6.1% slide between Monday and Thursday.

Epidemic fears

The concerns about North Korea's putative nuclear arsenal arose from face-to-face talks between US and North Korean officials sponsored by China.

They follow months of baiting, with North Korea blaming Washington DC for broken promises and the US demanding that Pyongyang drop its re-started nuclear programme before talks can begin.

The news adds to the pre-existing sense of gloom shrouding Asia's economies in the wake of the Sars respiratory virus.

Hong Kong and China, the two most hard-hit jurisdictions, are facing serious damage to their growth prospects as a result, the World Bank and other forecasters are warning.

The effect on the rest of Asia is also likely to be severe, they say.