U.S. stock futures and Asian share markets tumbled on Tuesday, while the yen jumped to four-month highs against the dollar after North Korea fired a missile over northern Japan, fuelling worries of fresh tension between Washington and Pyongyang.
S&P mini futures fell as much as 0.85 percent on the news before paring losses to trade 0.55 percent down. On Monday, the index was little changed as investors tried to assess the fallout from Tropical Storm Harvey.
European shares are expected to fall, with spread-betters looking at a lower opening of 0.5 to 0.6 percent for Britain`s FTSE, France`s CAC and Germany`s DAX.
Japan`s Nikkei was down 0.9 percent to a four-month low at one point, then pared losses to be 0.5 percent off.
South Korea`s Kospi shed as much as 1.6 percent, helping to drag down MSCI`s broadest index of Asia-Pacific shares outside Japan 0.6 percent.
"All sectors are tumbling, which clearly shows that North Korea risks are the reasons behind it," said Cho Byung-hyun, a stock analyst at Yuanta Securities in Seoul.
North Korea fired a missile early on Tuesday that flew over Japan and landed in the Pacific about 1,180 kilometres (735 miles) off the northern region of Hokkaido, in a sharp escalation of tensions on the Korean peninsula.
North Korea has conducted dozens of ballistic missile tests under young leader Kim Jong-Un, but firing projectiles over mainland Japan is his first.
"The missile flew across Japan this time, so the implications will likely be a bit different from previous ones," said Hirokazu Kabeya, chief global strategist at Daiwa Securities.
North Korea threatened earlier this month to fire missiles into the sea near the U.S. Pacific territory of Guam, a host to major U.S. military installations, after President Donald Trump warned Pyongyang would face "fire and fury" if it threatened the United States.
The yen rose 0.8 percent to 108.33 to the dollar, its highest since April, despite Japan`s proximity to North Korea, and last stood at 108.79.
The 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 safe-haven Swiss franc hit a one-month high of 0.9498 franc to the dollar and last traded at 0.9523 franc on the dollar, up 0.3 percent. The Swiss currency gained 0.4 percent versus the euro to 1.1396 per euro.
The euro hit a its 2 1/2-year high of $1.1986 and last stood at $1.1970, maintaining its uptrend after European Central Bank chief Mario Draghi did not express concern about the currency`s recent rise in his speech at Jackson Hole.
Gold also jumped 0.9 percent to $1,324 per ounce, hitting its highest level since Nov 9.
Investors also rushed to the safety of U.S. Treasuries, pushing down the 10-year yield to a two-month low of 2.122 percent.
On the other hand, the South Korean won retreated 0.8 percent against the dollar to 1,127 won.
"Financial markets think the only realistic option for the U.S. and North Korea will be to sit down and talk at some point because other options are too costly for everyone involved," said Masayoshi Kichikawa, chief strategist at Sumitomo Mitsui Asset Management.
"But no one cannot rule out the risk of accidents. Markets think the chicken game will continue for now and North Korea will remain a risk," he added.
However, North Korea is not the only problem Trump is facing.
Investors are looking at what will happen to his push for tax reforms. He is expected to begin a major effort this week to convince the public of the need for them.
He would also need to work with the Congress to raise the debt ceiling and pass a budget by the end of next month, and investors expect acrimonious negotiations.
On Monday, U.S. shares were narrowly mixed as investors tried to assess the damage from Harvey, the most powerful hurricane to strike Texas in more than 50 years.
Crude oil prices bounced back a tad on the back of supply disruptions in Colombia and Libya, a day after U.S. crude futures dropped on worries that refinery shutdowns caused by to the flooding could boost inventory.
U.S. West Texas Intermediate (WTI) crude futures rose 20 cents, or 0.4 percent, to $46.77 a barrel, after having falling to as low as $46.15 in the previous session.
U.S. gasoline price, which surged as much as 7 percent to a two-year peak of $1.7799 per gallon on Monday, traded at $1.7381 in early Tuesday trade.