A pedestrian looks at an electronic board showing the various stock prices outside a brokerage in Tokyo, Japan, September 4, 2015. REUTERS/Yuya Shino/File Photo

By Hideyuki Sano and Nichola Saminather

TOKYO/SINGAPORE (Reuters) – Asian stocks fell and the British pound tumbled more than 2% on Monday as markets struggled to shake off deep uncertainty sparked by Britain’s decision to leave the European Union.

A pedestrian looks at an electronic board showing the various stock prices outside a brokerage in Tokyo, Japan, September 4, 2015. REUTERS/Yuya Shino/File Photo

Sentiment remained weak even though the worst of the turmoil seen on Friday, when global stock markets suffered their biggest decline in nearly five years, had eased.

“Things are so uncertain that investors still do not have a clear idea how much risk assets they need to sell,” said Hiroko Iwaki, senior foreign bond strategist at Mizuho Securities.

“But it is safe to assume investors are not yet done with all the selling they need to. I wouldn’t be surprised to see another 10% fall in share prices,” she added.

Among many questions the British exit, or Brexit, has triggered are just how much UK and European economies will slow, how they will negotiate their new relationship and how European leaders will try to boost the crumbling European Union.

U.S. S&P mini futures, the world’s most traded stock futures, fell 0.4% to 2,011.50, hovering close to Friday’s 3-1/2 month low of 1,999.

MSCI’s broadest index of Asia-Pacific shares outside Japan  shrank losses to 0.6% as companies with UK exposure in particular came under more pressure.

Financials led declines in Australia and Hong Kong with the sector seen the among worst hit by Brexit and the prospect of London losing its prized “EU passport”.

“We think Brexit could just be the first surprise in a re-calibration of the world away from globalization towards more inward looking policy-making,” Ajay Singh Kapur, equity strategist at Bank of America Merrill Lynch in Hong Kong, wrote in a note.

“Brexit has now possibly opened up more uncertainty about the European Union project, and that the already beated down Asian and emerging markets equity markets could receive asset allocation flows from Europe,” he added.

Japan’s Nikkei extended gains to 1.9%, a partial rebound after Friday’s hefty 7.9% fall. Japanese stocks were helped by stronger warnings from Japanese officials that they may intervene in currency markets to stabilize the yen.

Still, the dollar fell 0.3% against the safe-haven yen, trading around 101.81 yen.

Chinese shares also gained, with the CSI 300 index and the Shanghai Composite both up about 0.8%.

The British pound fell 2% to $1.34, still some distance from the 31-year low of $1.3228 touched during Friday’s wild trade.

The euro also came under further pressure, falling 0.8% against the dollar, as investors fret Brexit could stoke the anti-establishment mood in Europe and even talk of disintegration of the union.

“(There will be) sell-off in the euro as talk of other exit referenda builds,” said Jerome Booth, chairman of New Sparta Asset Management in London. “This sell-off will be more profound and long-lasting and will be not just against the dollar and yen but also against the pound. It will also raise fears of significant loss of values for holders of Euro-zone government bonds.”

The euro fell to $1.1028, edging closer to Friday’s 3-1/2-month low of $1.0912.

The euro’s weakness helped to push the Chinese yuan to its weakest level against the dollar since December 2010 on Monday. It fell to 6.6396 per dollar after opening at 6.6360 per dollar, compared with the 5 1/2-year low midpoint level of 6.6375 set by the central bank, and touching an intraday low of 6.6469.

But in a sign Britain’s shock decision to leave the European Union may be encouraging Europeans to seek the safety of the status quo, support for Spain’s conservative People’s Party (PP) surged in Sunday’s general election.

Oil prices fell more than 1% in early trade, with international benchmark Brent futures down 0.3% to $48.28 per barrel.

U.S. crude slipped 0.5% to $47.40.

Demand for safe haven assets such as government debt and precious metals remained strong.

The 10-year U.S. debt yield dropped to 1.5020%. On Friday, it fell as low as 1.406%, near its record low of 1.381% marked in July 2012.

U.S. interest rate futures have completely priced out any chance of a rate hike by the Federal Reserve this year and are pricing in less than 50% chance of a rate hike even by the end of 2017.

Gold rose 0.6% to $1,323.68 per ounce.

(Editing by Lincoln Feast)

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