Dow drops 200 points on escalating North Korea tensions

Persistent gold buying by local jewellers at domestic spot market stoked uptrend

The stage was set for the USA indexes to go lower early Wednesday as investors around the world reacted to the rising war of words between the United States and North Korea, pushing global market indexes lower.

Nevertheless, the geopolitical uncertainty looks set to continue, dealers said, following Trump's fresh warning Thursday that his earlier threat to unleash "fire and fury" on the reclusive nuclear-armed state may not have been "tough enough".

The market volatility - the VIX index, nicknamed " the fear index, had been dashed the night before - remained high compared to the evolution since the beginning of the year.

Friday caps a week dogged by escalating tension between the USA and North Korea which culminated with President Donald Trump stating that his earlier threat to unleash "fire and fury" on North Korea "maybe wasn't tough enough".

News that U.S. producer prices unexpectedly fell in July earlier helped send the dollar lower.

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THE QUOTE: "Today's inflation data put the Fed on pause and really diminishes the fact that there's still some noise going around with the North Korea-U.S. situation", said Phil Blancato, CEO of Ladenburg Thalmann Asset Management.

The greenback also came under pressure after New York Federal Reserve President William Dudley cautioned it would "take some time" for U.S. inflation to reach the bank's two percent target, the latest warning price pressures remain muted. Titled "Reckless game over the Korean Peninsula runs risk of real war", the editorial suggested China will stay neutral if North Korea strikes first, but will intervene if the U.S.is the first mover.

Safe havens benefited from the move away from stocks - gold rising again to around $1,290 an ounce after surging 1.3 percent Wednesday - but other risky assets such as oil and copper held their price.

European stocks opened sharply lower with Britain's FTSE 100 down 1.2 percent to 7,302.18.

The dollar weakened after news that USA producer prices unexpectedly fell in July, recording their biggest drop in almost a year and pointing to a further moderation in inflation that could delay a Federal Reserve interest rate increase.

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The major averages all closed in positive territory, although the tech-heavy Nasdaq outperformed its counterparts.

The Dow Jones Industrial Average closed down 204.69 points, or 0.93 per cent, at 21,844.01, the S&P 500 lost 35.81 points, or 1.45 per cent, to end the session at 2,438.21 and the Nasdaq Composite fell 135.46 points, or 2.13 per cent, to 6,216.87.

Burger chain Wendy's was up 4.20 per cent after it reported better-than-expected quarterly profit and sales.

Gold is up 11% so far this year. Disappointing company earnings also helped pull the market lower, with consumer-focused companies and technology stocks among the biggest decliners. The price of gold rose 1.2 percent and the Swiss franc had its best day in almost three years.

The dollar last changed hands at 108.96 yen, down 0.2 percent. ANZ fell 1.9%, Commonwealth shed 0.7% and Westpac declined 1.3% after RBA Governor Philip Lowe said the central bank is prepared to be patient on rates for quite some time.

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According to analyst Simona Gambarini, the price of gold "tends to rise in anticipation of a conflict but often falls when tensions turn into a full-blown war".

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