By Nichola Saminather
SINGAPORE (Reuters) - Asian equity markets extended a global slide on Friday as tensions ramped up between the United States and North Korea, sending investors fleeing to less risky assets such the yen and the Swiss franc.
Wall Street closed sharply lower after U.S. President Donald Trump issued a new round of fiery rhetoric, warning Pyongyang against attacking Guam or U.S. allies after it disclosed plans to fire missiles over Japan to land near the U.S. Pacific territory.
The sell-off is likely to extend into the European session, with financial spreadbetter CMC Markets expecting Germany's DAX and France's CAC 40 to open down about 0.7 percent each and Britain's FTSE 100 to start 0.55 percent lower.
MSCI's broadest index of Asia-Pacific shares outside Japan skidded 1.55 percent, its biggest one-day loss since mid-December. It is heading for a 2.5 percent drop for the week.
Japanese markets were closed for a holiday.
Many markets have recently climbed to record or multi-year highs, leaving them vulnerable to a sell-off.
"What has changed this time is that the scary threats and war of words between the U.S. and North Korea have intensified to the point that markets can't ignore it," said Shane Oliver, head of investment strategy at AMP Capital in Sydney.
"Of course it's all come at a time when share markets are due for a correction so North Korea has provided a perfect trigger."
South Korea's KOSPI fell 1.8 percent to an 11-1/2-week low, taking its losses this week to 3.2 percent.
The Korean won also continued to skid, down 0.45 percent to 1,147.2, falling below its 200-day moving average for the first time in a month.
Australian shares were down 1.3 percent, set for a weekly loss of 0.6 percent.
Chinese bluechips lost 1.6 percent, while Hong Kong's Hang Seng was 1.9 percent lower.
If North Korea launches an attack that threatens the United States, China should stay neutral, but if the U.S. attacks first and tries to overthrow North Korea's government, China will stop them, a Chinese state-run newspaper said on Friday.
"This situation is beginning to develop into this generation's Cuban Missile crisis moment," ING's chief Asia economist Robert Carnell wrote in a note.
"While the U.S. President insists on ramping up the war of words, there is a decreasing chance of any diplomatic solution," Carnell said.
Trump's threat earlier this week, to unleash "fire and fury" on Pyongyang if it attacked, was ultimately dismissed as bluster by many investors.
Trump's second warning, however, has shaken markets that have been largely resilient this year, swatting away a slew of risks. These have ranged from an investigation into Russia's possible interference in the 2016 U.S. 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 U.S. stock market volatility, rose the most in about 12 weeks. The index closed at its highest level since Nov. 8, when Trump was elected president.
The Chinese volatility gauge jumped by the most since January 2016 to its highest level in more than seven months.
The MSCI World index slipped 0.15 percent, extending Thursday's 1.1 percent drop, its biggest one-day slide since May 17.
The dollar widened losses against the yen to hit a two-month low. It was down 0.2 percent at 108.98 yen, after retreating 0.7 percent on Thursday.
The yen is perceived as a safe haven because Japan is the world's biggest creditor country and investors there have tended to repatriate funds in times of crisis.
But "the yen may be expected to lose its safe haven status if U.S.-North Korean tensions continue to escalate," leaving the Swiss Franc, and possibly the U.S. dollar, as the remaining beneficiaries of risk aversion, Emmanuel Ng, currency strategist at OCBC Bank in Singapore, wrote in a note.
For now, the dollar remained on the back foot, pulling back 0.1 percent to 0.9635 Swiss francs on Friday, after dropping as much as 1.2 percent to a two-week low overnight.
Disappointing U.S. inflation and jobs data have not helped the dollar.
U.S. producer prices unexpectedly recorded their biggest drop in nearly a year, and the number of Americans filing for unemployment benefits unexpectedly rose last week.
Markets are now awaiting U.S. consumer price data for July, due later in the session.
Spot gold prices were little changed at $1,286.05 an ounce, after touching a two-month high earlier. They have soared over 2 percent in the previous two sessions, and are set for a weekly gain of 2.25 percent.
Crude futures extended losses on fears of slowing demand and lingering concerns over a global oversupply.
U.S. crude was down 0.9 percent at $48.16 per barrel, on track for a weekly loss of 2.9 percent.
Global benchmark Brent also lost 0.9 percent to $51.44, after Thursday's 1.5 percent drop. It is poised to end the week down 1.9 percent.
(Reporting by Nichola Saminather; Additional reporting by Rodrigo Campos; Editing by Lisa Twaronite & Shri Navaratnam)
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