Shares, dollar slip as U.S.-North Korea tensions escalate

By Lisa Twaronite

TOKYO (Reuters) - Asian shares and U.S. stock futures slipped on Wednesday and investors piled into havens such as U.S. Treasuries, gold and the yen as tensions on the Korean peninsula escalated, with Pyongyang saying it is considering plans to attack Guam.

A spokesman for the Korean People's Army said in a statement that it was "carefully examining" plans for a missile attack on the U.S. Pacific territory, which has a large American military base.

The comments came just hours after U.S. President Donald Trump told North Korea that any threat to the United States would be met with "fire and fury", rattling global financial markets.

Stock market losses slowly deepened throughout the day.

MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.7 percent, while Japan's Nikkei was 1.5 percent lower as the stronger yen sapped investors' appetite.

South Korean shares, which have been among the strongest performers in the world so far this year, fell 0.9 percent, while the won sank around 0.7 percent to 1,136.4 to the dollar. Both slid to more than one-month lows.

Financial markets have tended to quickly shake off North Korea's periodic sabre-rattling in the past, dismissing it as bluster, but tensions have lingered this year amid signs that it is making progress in its ballistic missile programme and on Trump's growing frustration with Pyongyang.

"The sell-off caused by geopolitical tensions on North Korea will likely be short-lived as long as both Trump and Kim Jong Un keep making feints against each other and neither takes military action," said Tomoaki Fujii, head of the investment research division at Akatsuki Securities Inc in Tokyo.

"The market's dent only lasted for a week in April when tension rose between them after North Korea launched a missile. Both counties know that there is no turning back once they push the button," Fujii said.

But others believe North Korea has no intentions of backing down.

"Tensions will continue to mount and could eventually develop into a 'black swan' event that the markets are not prudently considering," Steve Hanke, professor of Applied Economics at the Johns Hopkins University, told the Reuters Global Markets Forum on Wednesday.

Though Hanke said he did not expect a sustained sell-off in riskier Asian assets, he added "safe assets, as a class, are probably underpriced at present."

S&P 500 e-mini futures were down 0.3 percent, pointing to weakness on Wall Street later in the day, while the dollar skidded 0.4 percent against its perceived safe-haven Japanese counterpart to 109.84 yen, plumbing its lowest levels since mid-June.

The euro slid 0.6 percent to 128.92 yen, and fell 0.1 percent against the dollar to $1.1735.

"It's a clear case of 'risk-off' sentiment lifting the yen, as investors focus on the latest developments with North Korea," said Kumiko Ishikawa, FX market analyst at Sony Financial Holdings in Tokyo.

Thin liquidity could also amplify market moves, she added, with markets in Singapore closed for a public holiday and many market participants in Japan taking time off this week ahead of a public holiday on Friday.

The dollar index, which tracks the greenback against a basket of six major rivals, was nearly flat on the day at 93.646, remaining above last week's 15-month low of 92.548.

The yield on the benchmark 10-year U.S. Treasury note fell to 2.249 percent from its U.S. close of 2.282 percent on Tuesday.

U.S. stocks closed lower on Tuesday after Trump's vow to respond aggressively to any North Korean threats triggered a late afternoon selling spree.

Spot gold added 0.4 percent to $1,265.18 an ounce, pulling away from the previous session's two-week lows.

Crude oil prices extended their slide as exports from key OPEC producers rose, despite news of lower crude shipments from Saudi Arabia.

U.S. crude shed 15 cents to $49.02 a barrel, while Brent crude fell 21 cents a barrel at $51.93 a barrel.

(Additional reporting by Marika Tsuji and Ayai Tomisawa in Tokyo, and Divya Chowdhury in Mumbai; Editing by Eric Meijer and Kim Coghill)