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GLOBAL MARKETS-Selloff in stocks takes a breather; gold and yen tick up

Published 12/08/2017, 05:54 am
Updated 12/08/2017, 06:00 am
© Reuters.  GLOBAL MARKETS-Selloff in stocks takes a breather; gold and yen tick up
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(Updates prices, adds comment)

* U.S. President Trump steps up rhetoric on North Korea

* Measure of global stock market cap drops $1 trillion

* Yen touches four-month high vs dollar

By Rodrigo Campos

NEW YORK, Aug 11 (Reuters) - Wall Street put a floor under global equities on Friday after a weak inflation reading brought investors back into U.S. stocks even as tensions between the United States and North Korea continued to escalate, though the geopolitical fears still drove safe-haven buying of gold and the yen.

A slight rise in a measure of U.S. consumer prices pointed to benign inflation that could make the Federal Reserve cautious about raising interest rates again this year, which would be favorable to equity investors.

The hope that the Fed will have to slow its rate-hike path appeared to stop, at least for now, the near $1-trillion loss in world stocks valuations this week triggered by the war of words between Pyongyang and Washington.

"The data confirms the Fed will have a wait-and-see attitude," said King Lip, chief investment officer at Baker Avenue Asset Management in San Francisco. Reuters data show a 28 percent chance for a hike after the Fed's December meeting.

Japanese markets were closed for a holiday, but the tense mood dragged Asian shares lower and an MSCI index of stocks across the globe .MIWD00000PUS was on track to post its largest weekly drop since the week before Donald Trump won the U.S. presidential election in November.

Trump issued a new warning to Pyongyang on Friday, saying in a tweet: "Military solutions are now fully in place, locked and loaded, should North Korea act unwisely." Korea had responded to Trump's previous promise to unleash "fire and fury" with a threat to land a missile near the U.S. Pacific territory of Guam. is "a bullish sign that the equity markets are rebounding somewhat on a Friday, in spite of the fact that investors will need to wait for two days to react to any geopolitical news that comes out over the weekend," said Robert Phipps, a director at Per Stirling Capital Management in Austin, Texas.

"If earnings can stay strong and interest rates remain low investors can look beyond North Korea and continue to rally equities," Phipps said.

The Dow Jones Industrial Average .DJI rose 38.9 points, or 0.18 percent, to 21,882.91, the S&P 500 .SPX gained 5.46 points, or 0.22 percent, to 2,443.67 and the Nasdaq Composite .IXIC added 41.86 points, or 0.67 percent, to 6,258.73. pan-European FTSEurofirst 300 index .FTEU3 lost 1.01 percent and MSCI's gauge of stocks across the globe .MIWD00000PUS shed 0.12 percent.

Emerging market stocks lost 1.20 percent. MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS closed 1.37 percent lower.

South Korea's KOSPI .KS11 fell 1.7 percent on Friday to its lowest level since May 24, but its losses for the week are a relatively modest 3.2 percent.

"Pretty remarkable, perhaps even extraordinary, considering," said Tim Ash, strategist at fund manager BlueBay.

A Reuters Datastream index of more than 7,000 stocks across the globe saw its market capitalization drop from a record high $61.36 trillion on Monday to $60.43 trillion at the close on Thursday.

Many world stock markets have hit record or multi-year highs in recent weeks, leaving them vulnerable to a selloff, and the tensions over North Korea have proved to be the trigger.

The yen on Friday added to a strong weekly rally against the dollar of close to 1.5 percent, hitting its highest level versus the greenback in almost four months, at 108.73 yen JPY= . yen tends to benefit during times of geopolitical or financial stress as Japan is the world's biggest creditor nation and there is an assumption that Japanese investors will repatriate funds should a crisis materialize.

The Korean won KRW=KFTC continued to fall versus the dollar, down 0.13 percent to 1,143.5 on Friday for a 1.6 percent decline on the week.

The dollar was further weighed on Friday by the soft U.S. inflation data. the data continues to come in on the softer side, the market might start to price the Fed staying on hold this year," said Sireen Harajli, FX strategist at Mizuho in New York.

The dollar index .DXY fell 0.39 percent, with the euro EUR= up 0.48 percent to $1.1827.

Sterling GBP= was last trading at $1.3013, up 0.30 percent on the day.

The Japanese yen last strengthened 0.16 percent versus the greenback at 109.05 per dollar

In bond markets, the yield on U.S. Treasuries fell, also pressured by the lowered expectations for a Fed move. are four more (inflation) prints between now and the December FOMC meeting and we expect the Fed to remain data-dependent, if a touch more cautious," TD Securities said in a research note.

Benchmark 10-year notes US10YT=RR last rose 7/32 in price to yield 2.1888 percent, from 2.211 percent late on Thursday.

The 30-year bond US30YT=RR last rose 6/32 in price to yield 2.7847 percent, from 2.794 percent late on Thursday.

After touching a more than two-month high, spot gold XAU= last added 0.3 percent to $1,290.00 an ounce. U.S. gold futures GCcv1 gained 0.50 percent to $1,296.60 an ounce.

Ongoing global glut concerns lingered in oil markets despite a bigger-than-expected draw in U.S. crude inventories, leaving prices volatile.

U.S. crude CLcv1 rose 0.43 percent to $48.80 per barrel and Brent LCOcv1 was last at $52.01, up 0.21 percent on the day. "Fear and fury" costs global markets $1 trillion

http://reut.rs/2fxcDUH World FX rates in 2017

http://tmsnrt.rs/2egbfVh Global assets in 2017

http://reut.rs/1WAiOSC Global bonds dashboard

http://tmsnrt.rs/2fPTds0 Global market cap

http://reut.rs/2mcp7T1 Emerging markets in 2017

http://tmsnrt.rs/2ihRugV

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