LONDON

World stocks fell for a third day on Thursday and investors moved back into the Swiss franc, yen and gold as North Korea ratcheted up tensions with the United States with a threat to land a missile just short of the US territory of Guam.

Markets had seen a tentative recovery in risk appetite in US and early Asian trading, but as the war of words resumed Asian stocks dropped back and London, Frankfurt and Paris all lost 0.5-1.2 per cent.

The Dow lost more than 100 points on Thursday as investors fretted over escalating tensions between the United States and North Korea.

The latest tensions began after US President Donald Trump on Tuesday warned North Korea that it would face “fire and fury” if it threatened the United States.

All the 11 major S&P indexed were lower, with technology sector’s 0.62 per cent leading the decliners. At 9:38am. ET (1338 GMT) the Dow Jones Industrial Average was down 85.43 points, or 0.39 per cent, at 21,963.27, the S&P 500 was down 10.31 points, or 0.42 per cent at 2,463.71.

Currency traders consolidated positions in the Japanese yen and Swiss franc, and nudged up the dollar index by unwinding some of the recent big bets on the euro.

Although Japan could be in the front line of any clash with North Korea, the yen is benefiting because Japan is the world’s biggest creditor nation and Japanese investors tend to repatriate funds in times of stress, attracting other flows.

The euro was down 0.4 per cent at just over $1.17 and nearing a two-week low, while the New Zealand dollar tumbled a full 1 per cent as its central bank head bluntly said he wanted it lower.

“We saw a tentative recovery in risk appetite yesterday from the sell off inspired by North Korea but I think justifiably that move is fading a little bit today,” said Saxo Bank’s head of FX strategy John Hardy.

“I think this situation is more critical that the market is respecting.” Overnight North Korea dismissed as a “load of nonsense” warnings by US President Donald Trump that it would face “fire and fury” if it threatened the United States.

It also outlined detailed plans for a missile strike near Guam, which is more than 3,000km (2,000 miles) to the southeast of North Korea and home to about 163,000 people, a US Navy base that includes a submarine squadron and an airbase.

“Sound dialogue is not possible with such a guy bereft of reason and only absolute force can work on him,” a report by the North’s state-run KCNA news agency said of Trump.

Analysts said yields, which move inversely to prices, could fall further if the geopolitical tensions continue to rise — even if central bankers in the United States continue to talk of raising interest rates or scaling back stimulus programmes.

“We would currently be careful with a whiff of risk aversion in the air and, by extension, also stay away from shorts in the rates market,” RBC’s global macro strategist Peter Schaffrik said.