Global markets: Stocks fall after North Korea says U.S. declared war; euro slips

By Rodrigo Campos

NEW YORK (Reuters) - Stocks on Wall Street added to earlier losses while U.S. government bond yields dropped after North Korea accused the United States of having declared war on the isolated country, while the euro fell after German elections showed support for Chancellor Angela Merkel's party fell to its lowest since 1949.

Separately, Brent oil futures touched a more than 2-year high after major producers said the global market was on track to rebalance and Turkey said it could cut off a pipeline that carries oil from northern Iraq to the global market.

On Wall Street, a selloff in tech stocks drove major indexes lower and equities fell further after the North Korean Foreign Minister said in a statement at the United Nations that U.S. President Donald Trump's tweets over the weekend were tantamount to a declaration of war.

"What is Trump going to do: is he going to escalate or will he rein it in? Everyone's waiting with a cringe on their face," said Jason Ware, chief investment officer at Albion Financial in Salt lake City.

"We don't want this to continue, to become a war of words, and then who knows when a mistake can happen... and there's a lot of that chatter going on on trading desks."

The White House spokeswoman said at a press briefing that the United States had not declared war on North Korea and to suggest that is "absurd."

The Dow Jones Industrial Average fell 72.95 points, or 0.33 percent, to 22,276.64, the S&P 500 lost 10.35 points, or 0.41 percent, to 2,491.87 and the Nasdaq Composite dropped 77.40 points, or 1.2 percent, to 6,349.53.

The pan-European FTSEurofirst 300 index rose 0.23 percent and MSCI's gauge of stocks across the globe shed 0.54 percent.

A stronger U.S. dollar weighed on emerging market stocks, which lost 1.47 percent, the most in over four months. MSCI's broadest index of Asia-Pacific shares outside Japan closed 1.31 percent lower, while Japan's Nikkei <.N225> rose 0.50 percent.

EURO TUMBLES, OIL CLIMBS

Germany's Angela Merkel began the task of trying to build a government after securing a fourth term as chancellor, urging the centre-left Social Democrats not to shut the door on a re-run of their "grand coalition." The emergence of the pro-regulation Greens as power-brokers weighed on the euro and other financial markets.

"Markets don't like uncertainty and the German election results have injected a healthy dose of (that)," said Richard Falkenhall, a strategist at SEB AB in Stockholm.

The dollar index rose 0.53 percent, with the euro down 0.93 percent to $1.1841.

The Japanese yen strengthened 0.29 percent versus the greenback at 111.66 per dollar, while Sterling was last trading at $1.3469, down 0.16 percent on the day.

The U.S. dollar also benefited from a New Zealand election which left the ruling National Party short of the necessary votes to rule without forming a coalition. The greenback gained 0.8 percent to the kiwi .

Brent crude touched its highest since July 2015 after major producers said the global market was on track to rebalance and Turkey said it could cut off a pipeline that carries oil from northern Iraq to the global market, putting more pressure on the Kurdish autonomous region over its independence referendum.

"If this boycott call proves successful, a good 500,000 fewer barrels of crude oil per day would reach the market," Commerzbank said in a note.

U.S. crude rose 2.92 percent to $52.14 per barrel and Brent was last at $58.36, up 3.44 percent on the day.

Safe-haven demand drove U.S. Treasury yields to session lows after the North Korean foreign minister's remarks at the UN. He said Pyongyang reserves the right to take countermeasures.

Benchmark 10-year notes last rose 11/32 in price to yield 2.2233 percent, from 2.262 percent late on Friday.

The 30-year bond last rose 20/32 in price to yield 2.7654 percent, from 2.796 percent late on Friday.

Spot gold added 0.9 percent to $1,308.11 an ounce. U.S. gold futures gained 1.09 percent to $1,311.70 an ounce.

Copper rose 0.09 percent to $6,462.50 a tonne.

(Reporting by Rodrigo Campos, Dion Rabouin, Jessica Resnick-Ault, Richard Leong; Editing by Nick Zieminski)