Global markets: Stocks off after North Korea says U.S. declared war; euro slides

By Rodrigo Campos

NEW YORK (Reuters) - Stocks fell on Wall Street and U.S. government bond yields dropped on Monday 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 conservative party fell to its lowest since 1949.

Separately, Brent oil futures touched a more-than-2-year high after major producers said the crude market was on track to rebalance and Turkey threatened to cut oil flows from Iraq's Kurdistan region towards its ports.

On Wall Street, a selloff in tech stocks drove major indexes lower and equities fell further after North Korea's 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, adding that to suggest that is "absurd."

The Dow Jones Industrial Average fell 53.5 points, or 0.24 percent, to 22,296.09, the S&P 500 lost 5.56 points, or 0.22 percent, to 2,496.66 and the Nasdaq Composite dropped 56.33 points, or 0.88 percent, to 6,370.59.

The pan-European FTSEurofirst 300 index rose 0.23 percent and MSCI's gauge of stocks across the globe shed 0.39 percent.

A stronger U.S. dollar weighed on emerging market stocks <.MSCIEF>, which lost 1.27 percent, the most in over four months. MSCI's broadest index of Asia-Pacific shares outside Japan closed 1.14 percent lower, while Japan's Nikkei <.N225> rose 0.50 percent.

EURO TUMBLES, OIL CLIMBS

German Chancellor Angela Merkel began the task of trying to build a government after securing a fourth term, 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 likely 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 0.52 percent, with the euro down 0.89 percent to $1.1846.

The Japanese yen strengthened 0.24 percent versus the greenback at 111.73 per dollar, while Sterling was last trading at $1.3468, down 0.17 percent on the day.

The U.S. dollar also benefited from a New Zealand election that left the ruling National Party short of the necessary votes to rule without forming a coalition. The greenback gained 1.1 percent against 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 close 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 2.96 percent to $52.16 per barrel and Brent was last at $58.63, up 3.92 percent on the day.

Safe-haven demand drove U.S. Treasury yields lower 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 12/32 in price to yield 2.2216 percent, from 2.262 percent late on Friday.

The 30-year bond last rose 22/32 in price to yield 2.763 percent, from 2.796 percent late on Friday.

Spot gold added 1.0 percent to $1,310.21 an ounce. U.S. gold futures gained 1.27 percent to $1,314.00 an ounce.

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

(Reporting by Rodrigo Campos, Dion Rabouin, Jessica Resnick-Ault, Richard Leong and Chuck Mikolajczak; Editing by Nick Zieminski and Dan Grebler)