Shares fall as Indo-Pakistani tensions hit risk appetite

Emerging market shares fell on Wednesday, as escalating border tensions between nuclear-armed neighbours India and Pakistan hit risk sentiment.

Pakistan said it had shot down two Indian jets, a day after Indian warplanes struck a target in Pakistani territory. The strike comes less than two weeks after a suicide car bombing killed at least 40 Indian paramilitary police.

MSCI's index of emerging market stocks dipped 0.2 percent. India's benchmark BSE index fell as much as 0.7 percent, while the broader NSE stock index dipped up to 0.8 percent, before cutting some losses.

India's rupee dropped as much as 0.6 percent and was last at 71.3050 per dollar.

"India and Pakistan going at each other is concerning for us as an investor from a European perspective, that's clear," said Morten Lund, an analyst with Nordea Markets, adding that there were also concerns about India's forthcoming election and its banking sector.

Pakistan's shares dived more than 3 percent during the session, while its rupee weakened.

Lund said the India-Pakistan situation could affect other emerging markets, especially if progress slowed on a U.S.-China trade deal, where more investor money is tied up.

South Korea's won weakened 0.3 percent and was on track for its worst day in two weeks, while local stocks closed higher ahead of a meeting between the leaders of the United States and North Korea to discuss peace in the Korean peninsula.

Turkey's lira firmed 0.2 percent against the dollar, which lost ground after Fed Chairman Jerome Powell told lawmakers the Fed was in "no rush to make a judgement" about further changes to interest rates. This repeated comments made last month that indicated a pause in the three-year cycle of rate hikes.

Hungary's forint climbed 0.2 percent against a slightly stronger euro ahead of speeches by Prime Minister Viktor Orban and Gyorgy Matolcsy, the central bank chief.

The bank matched broad market expectations by leaving interest rates at a record low on Tuesday.