August 10, 2017 / 12:38 AM / 9 days ago

North Korea talk drags stocks lower; gold, yen rise

Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., July 17, 2017.Brendan McDermid

NEW YORK (Reuters) - Stocks around the world fell sharply on Thursday and investors moved into the yen, gold and other safe-haven assets amid more aggressive talk between the United States and North Korea.

The S&P 500 dropped the most since May and MSCI's gauge of stocks across the globe .MIWD00000PUS lost 1.1 percent in its third straight day of declines, as it pulled further back from all-time highs.

The Japanese yen hit an eight-week high against the U.S. dollar, and U.S.-traded Nikkei stock futures dropped 2 percent to their lowest since mid May. Spot gold reached a two-month high.

Rising geopolitical tensions were heightened further when U.S. President Donald Trump warned Pyongyang it should be "very, very nervous" if it even thinks about attacking the United States or its allies, after Pyongyang said it was making plans to fire missiles over Japan to land near the U.S. Pacific territory of Guam.

"We're not very oversold yet so the market still has more downside left to it. What we're seeing today is political tensions over North Korea and the United States ... making people nervous," said Robert Pavlik, chief market strategist at Boston Private Wealth in New York.

"We're still close to the all-time high so that makes people a little nervous too, so they might say now might be the time to take a little bit of money off the table."

The Dow Jones Industrial Average .DJI fell 204.69 points, or 0.93 percent, to close at 21,844.01, the S&P 500 .SPX lost 35.81 points, or 1.45 percent, to 2,438.21 and the Nasdaq Composite .IXIC dropped 135.46 points, or 2.13 percent, to 6,216.87.

The pan-European FTSEurofirst 300 index .FTEU3 lost 1.11 percent. U.S.-traded Nikkei futures NKc1 fell 2 percent to their lowest since mid-May.

In currencies, the yen rose 0.8 percent versus the greenback at 109.2 per dollar JPY=, the strongest level for the Japanese currency since mid June.

"The yen is the big story really. Risk aversion is still very much a concern for markets," said Shaun Osborne, chief currency strategist at Scotiabank in Toronto.

The dollar index .DXY, which measures the U.S. currency against a basket of other major currencies, fell 0.14 percent.

The dollar weakened after news that U.S. producer prices unexpectedly fell in July, recording their biggest drop in nearly a year and pointing to a further moderation in inflation that could delay a Federal Reserve interest rate increase.

U.S. Treasury long-dated yields dropped to six-week lows, pressured by U.S.-North Korea tensions and the weak data that further reduced expectations of a Fed rate hike in December.

Benchmark 10-year notes US10YT=RR were last up 12/32 in price to yield 2.201 percent, from 2.242 percent late on Wednesday.

The 30-year bond US30YT=RR last rose 28/32 in price to yield 2.7759 percent, from 2.818 percent late on Wednesday.

Crude oil prices tumbled on the back of the selloff on Wall Street and lingering concerns over global oversupply.

U.S. crude CLc1 was unchanged at $48.59 per barrel and Brent LCOc1 was last at $51.84, down 1.63 percent on the day.

Spot gold XAU= added 0.7 percent to $1,286.00 an ounce.

"The war of words between the leaders of the U.S. and North Korea continues to dominate investor sentiment," said Forex.com technical analyst Fawad Razaqzada.

"Gold and silver are higher, thanks mainly to their status as safe-haven commodities."

Additional reporting by Caroline Valetkevitch and Saqib Iqbal Ahmed in New York and Marc Jones and Eric Onstad in London; Editing by Nick Zieminski and James Dalgleish

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