(Reuters) Asian equities and U.S. stock index futures fell, with South Korean shares tumbling as much as 5 percent, while the dollar gained on safe-haven appeal after news of the death of North Korea leader Kim Jong-il raised fears of regional instability.

The South Korean won fell 1.8 percent on the news, announced at 0300 GMT, which financial markets fear could mean instability in northeast Asia because of the unpredictability of a leadership transition in the impoverished, secretive North.

Commodities also fell broadly, as investors reacted by shedding riskier assets in favour of the safe-haven dollar.

The risk or fear that the death of Kim Jong-il will lead to provocation by North Korea is pressuring selling, said Hiroyuki Fukunaga, CEO of Investrust, in Tokyo. Right now, there's going to be a sell-off as part of a risk-off.

The key focus will be how the succession proceeds.

It is hard to predict how things in North Korea will develop from here this time. The news comes at a time when financial market had already been in fragile shape, said Bae Sung-young, a market analyst at Hyundai Securities.

MSCI's broadest index of Asia Pacific shares outside Japan <.MIAPJ0000PUS> extended losses to slide as much as 2.9 percent, while South Korea's benchmark index was down 3.4 percent, having fallen as much as 5 percent earlier.

European shares were expected to open lower, with financial spreadbetters calling London's FTSE <.FTSE> to start down 0.9 percent, Frankfurt's DAX <.GDAXI> down 1.9 percent, and Paris' CAC-40 <.FCHI> 1.8 percent lower.

Japan's Finance Minister Jun Azumi said he was monitoring financial market moves after the news, which put regional powers on edge over what might happen next in the isolated state, whose collapsing economy and bid to become a nuclear weapons power pose major threats to northeast Asia.

Tokyo's Nikkei share average <.N225> ended down 1.3 percent, while the dollar jumped 0.5 percent against the yen, before paring gains a little, and S&P 500 futures fell 0.6 percent. The dollar rose as much as 0.3 percent against a basket of six key currencies <.DXY>.

RISK AVERSION

In light of uncertainties about what would follow after his death and what implications it would have on Asia, the initial reaction is to seek safe-haven in the dollar, said Takao Hattori, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo.

South Korean credit default swap (CDS) spreads, a gauge of investors' perception of risk, widened and Seoul's sovereign bonds weakened across the board after a tearful North Korean state television announcer broke the news of the death of the 69-year-old Dear Leader, who had ruled the state since 1994.

The 5-year South Korean CDS was traded at 170 basis points (bps), about 10 bps wider than the opening level.

Kim's youngest son, Kim Jong-un, is seen as the leader-in-waiting after being appointed to senior posts in 2010, but analysts say there are big questions over the credibility of a little-known figure who is still only in his 20s.

My guess is that it won't be a smooth leadership transition, it will probably be a testing time domestically, said Adrian Foster, head of financial markets research for Asia-Pacific at Rabobank International in Hong Kong.

Commodities, which were already under pressure due to Europe's sovereign debt crisis, fell, with copper down 1 percent at around $7,270 a metric ton and Brent crude off 0.7 percent at about $102.60 a barrel. Even gold, usually regarded as a safe-haven asset in times of uncertainty, slid 0.7 percent to $1,587 an ounce, partly as investors cashed out to cover losses elsewhere.

EUROPE DOWNGRADE FEARS

The euro, meanwhile, fell on fears that possible credit ratings downgrades of several European countries could derail progress towards resolving the euro zone's debt crisis.

Fitch Ratings warned on Friday it may downgrade France and six other euro zone countries, saying a comprehensive solution to the region's debt crisis was technically and politically beyond reach.

Fitch revised the outlook on France's top-notch rating to negative, saying the downgrade was not imminent but could come in two years. For Belgium, Cyprus, Ireland, Italy, Slovenia and Spain, ratings were already placed on credit watch negative, meaning downgrades could come within three months at most.

While credit downgrades are anticipated, thinning activity ahead of the Christmas holidays and concerns about the European debt woes dragging global growth helped aggravate price moves.

The euro fell 0.5 percent to around $1.2985, not far off an 11-month low of $1.2944 hit last week.

European policymakers made some progress in pursuing fiscal consolidation in Europe at a key summit meeting earlier in the month, but failed to nail down a convincing commitment for a crucial bailout program, prompting rating agencies to respond negatively.

Markets will wait for the outcome of a finance ministers' teleconference from 1430 GMT on Monday.

(Additional reporting by Cho Mee-young in Seoul, Francis Kan in Singapore and Mari Saito in Tokyo; Editing by Alex Richardson)

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