Stocks, Dollar, Extend Slide as USA, N. Korea Tensions Intensify

Asian shares mixed

Asian shares mixed

The U.S. dollar inched up against the Japanese yen and the Swiss Franc on Friday, erasing earlier losses, after Russian Foreign Minster Sergei Lavrov said there was a Russian-Chinese plan to defuse tensions between the United States and North Korea. The Dow Jones industrials average gained 14.31 points, or 0.1 percent, to 21,858.32.

LONDON, Aug 11 (Reuters) - The dollar was pinned close to an eight-week low against the yen on Friday as escalating tension over North Korea dominated currency markets thinned out by the summer holidays in Europe and the United States.

MSCI's broadest index of Asia-Pacific shares outside Japan skidded 1.55 percent, its biggest one-day loss since mid-December.

Many world stock markets have hit record or multi-year highs in recent weeks, leaving them vulnerable to a sell-off, and the tensions over North Korea have proved the trigger.

"Of course it's all come at a time when share markets are due for a correction so North Korea has provided a ideal trigger".

South Korea's KOSPI fell 1.7 percent to its lowest since May 24, but its losses for the week are a relatively modest 3.2 percent.

The Korean won continued to fall versus the dollar, down 0.13 percent to 1,143.5 on Friday for a 1.6 percent decline on the week.

Australian shares were down 1.3 percent, set for a weekly loss of 0.6 percent.

The pan-European FTSEurofirst 300 index lost 1.06 percent and MSCI's gauge of stocks across the globe shed 0.17 percent.

A Chinese state-run newspaper said on Friday that China should make clear that it will stay neutral if North Korea launches an attack that threatens the United States, but that if the US attacks first and tries to overthrow North Korea's government, China will prevent it doing so.

The yen gained more than 0.2 percent in Asian time as investors took their money out of higher-yielding currency plays following another warning from President Donald Trump to Pyongyang. These have ranged from an investigation into Russia's possible interference in the 2016 USA presidential election, to concerns about China's risky debt levels, to stubbornly low inflation in the U.S.

The CBOE Volatility Index, the most widely followed barometer of expected near-term USA stock market volatility, hit its highest mark since November 8, when Trump was elected president.

The VIX index, a measure of the volatility of S&P 500 index options that's typically referred to as the "fear index", meanwhile, jumped to a three-month high of more than 15.

The MSCI World index slipped 0.15 percent, extending Thursday's 1.1 percent drop, its biggest one-day slide since May 17.

The yen tends to benefit during times of geopolitical or financial stress as Japan is the world's biggest creditor nation and there is an assumption that Japanese investors will repatriate funds should a crisis materialize.

Sterling was last trading at $1.3009, up 0.27 percent on the day.

But "the yen may be expected to lose its safe haven status if U.S". The 1.3 percent gain for the market's main other choice for borrowing to fund speculation, the Swiss franc against the euro, is its biggest rise in more than a year.

The dollar was further weighed on Friday by the soft US inflation data.

In a note sent to clients late on Thursday, the US bank predicted the single currency would rise to $1.25 in the first quarter of next year and reach parity with sterling for the first time.

"If the data continues to come in on the softer side, the market might start to price the Fed staying on hold this year", said Sireen Harajli, FX strategist at Mizuho in NY.

After touching a more than two-month high, spot gold last added 0.1 percent to $1,287.18 an ounce. It soared over 2 per cent in the previous two sessions, and is set for a weekly gain of 2.25 per cent.

Crude futures extended losses on fears of slowing demand and lingering concerns over a global oversupply.

The dollar was up 0.05 percent to 109.25 yen, after earlier falling to a sixteen-week low following data showing USA consumer prices rose less than expected in July.

The dollar index fell 0.3 percent, with the euro up 0.36 percent to $1.1812. It is poised to end the week down 1.9 per cent.

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