Wall Street, dollar slip on North Korea jitters

By Hilary Russ

NEW YORK (Reuters) - Wall Street stocks fell on Tuesday as U.S. trading reopened for the first time since North Korea's biggest nuclear bomb test yet, and the U.S. dollar and Treasury yields fell.

The drop in major U.S. markets, which had been closed for Monday's Labor Day holiday, followed that day's global sell-off amid international condemnation of the nuclear test.

The Dow Jones Industrial Average fell 217.82 points, or 0.99 percent, to 21,769.74, the S&P 500 lost 21.28 points, or 0.86 percent, to 2,455.27 and the Nasdaq Composite dropped 74.39 points, or 1.16 percent, to 6,360.94.

The pan-European FTSEurofirst 300 index lost 0.11 percent and MSCI's gauge of stocks across the globe shed 0.27 percent.

The dollar, also driven lower by a Federal Reserve official's comments about low U.S. inflation, hit a one-week low against the Japanese yen and was on track for its biggest decline in eight days against a basket of currencies.

The dollar index fell 0.32 percent and the yen strengthened 0.72 percent versus the greenback at 108.94 per dollar.

Benchmark 10-year Treasury notes last rose 20/32 in price to yield 2.089 percent.

"It's a more risk-averse picture," said Vassili Serebriakov, FX strategist at Credit Agricole in New York. "North Korea accounts for most of it."

Federal Reserve Governor Lael Brainard said inflation was "well short" of target, so the Fed should be cautious about raising U.S. interest rates.

In Europe, markets were also lower, with stocks cutting their morning gains and investors shifting into bonds and the yen.

The euro edged up 0.13 percent to $1.1911 as signs of rising inflation pressure in euro zone data put the focus back on Thursday's European Central Bank meeting and its plans to reduce its stimulus program.

However, there were some bright spots, with euro zone business activity remaining robust last month.

Gold, the traditional go-to for traders when political concerns escalate, also eased on Tuesday, with investors booking profits after the previous session's rise to a one-year high.

Spot gold added 0.3 percent to $1,338 an ounce.

"What the recent (North Korea) episodes have shown is that you should not really try to follow these things as they tend to fade quickly," said Petr Krpata, ING's chief EMEA FX and rates strategist.

"It is less and less surprising for markets every time, so for us it is not a reason to change our constructive view on carry currencies."

GLOBAL CATASTROPHE

South Korea's Asia Business Daily, citing an unidentified source, reported that North Korea had moved what looked like an intercontinental ballistic missile toward its west coast, possibly in preparation for a launch.

Seoul said it had struck an agreement with the United States that would allow it to beef up the size and potency of its warheads.

Speaking at a summit of the world's biggest emerging economies in China, Russian President Vladimir Putin again warned that threatening military action against North Korea could trigger "a global catastrophe."

U.S. oil prices rose and gasoline fell as the gradual restart of refineries in the Gulf of Mexico, which had been shut by Hurricane Harvey, eased fears of a fuel supply crunch.

U.S. crude rose 3.26 percent to $48.83 per barrel and Brent was last at $53.54, up 2.29 percent on the day.

U.S. gasoline prices were 3.15 percent lower at $1.69 per gallon.

(Reporting by Hilary Russ in New York; Additional reporting by Marc Jones in London, Sam Forgione in New York and Zandi Shabalala in Johannesburg; Editing by Dan Grebler)