Asia stocks slip as North Korea moots H-bomb test

TOKYO (Reuters) – Asian stocks fell and the Japanese yen and Swiss franc gained yesterday after North Korea said it might test a hydrogen bomb in the Pacific Ocean and escalated a war of words with US President Donald Trump.

Spreadbetters expected European stocks to start lower amid a chill in risk appetite, forecasting Britain’s FTSE to open down 0.3 percent, Germany’s DAX to open 0.2 percent and France’s CAC to start 0.05 percent lower.

North Korean Foreign Minister Ri Yong Ho said he believes the North could consider a nuclear test on an “unprecedented scale” in the Pacific Ocean, South Korea’s

Yonhap news agency reported. MSCI’s broadest index of Asia-Pacific shares outside Japan handed back earlier gains and was down 0.7 percent.

The index rose to a decade high on Tuesday, lifted as Wall Street advanced to record levels, but fell back after the Fed heightened expectations for a third interest rate hike this year.

South Korea’s KOSPI fell 0.9 percent on the latest bout of geopolitical tensions.

Australian stocks managed to advance 0.3 percent while Japan’s Nikkei slipped 0.4 percent following a rise to a two-year high on Thursday.

“The headline about North Korea’s nuclear test gave a little shock to the market,” said Takuya Takahashi, a strategist at Daiwa Securities in Tokyo.

“Though the market is not expecting that there will be an immediate military action, it has triggered a profit-taking opportunity since the Nikkei had risen sharply recently.”

Hong Kong’s Hang Seng shed 0.8 percent and Shanghai was down 0.5 percent after S&P Global Ratings downgraded China’s long-term sovereign credit rating on Thursday, less than a month ahead of one of the country’s most sensitive political gatherings, citing increasing risks from its rapid debt build-up.

The dollar dropped 0.6 percent to 111.785 yen, pulling away from a two-month high of 112.725 touched on Thursday when US yields spiked on the back of the Fed's hawkish stance.

The 10-year Treasury yield declined about three basis points to 2.251 percent as risk aversion favoured government bonds. It had risen for nine consecutive sessions prior, brushing a six-week high of 2.289 percent.

The Swiss franc rose 0.2 percent to 0.9687 franc per dollar. The yen and franc are often sought in time of broader risk aversion.

Safe-haven gold ticked up, with spot prices up 0.5 percent at $1,297.11 an ounce, after marking its lowest since Aug. 25 at $1,287.61 in the previous session on a firmer dollar.

Apart from geopolitical risks, the focus was on how the region’s markets would fare when the Federal Reserve takes a step towards normalising monetary policy, as it projected on Wednesday following its policy meeting.