Mike van Dulken, head of research at Accendo Markets, said: "Equities are nursing losses thanks to an unwelcome escalation in geopolitical tensions between the U.S. and North Korea, both trading nuclear threats that have awoken volatility from its slumber and seen risk assets shunned in favour of the traditional safe havens". The dollar index, which measures its strength against a basket of currencies, gained 0.1 percent to 93.490.
Efforts by the United States to dial down rhetoric have failed to shift the bearish mood among investors.
According to reports, North Korea said it was completing plans to fire four intermediate-range missiles over Japan to land near the U.S. Pacific island territory of Guam.
"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.
'Traders are on red alert as the mention of war has sent them running for cover.
Markets overseas were mixed Tuesday.
Equities slid, while US Treasuries and gold climbed, as US President Donald Trump's latest comments further inflamed tension with North Korea.
In 3.23pm trading in NY, the Dow Jones Industrial Average gave up 0.7 percent, while the Nasdaq Composite Index dropped 1.8 percent. The Dow Jones industrial average slid 36.64 points, or 0.2 percent, to 22,048.70.
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"There seems to be a heightened fear of an escalation", said Andre Bakhos, managing director at Janlyn Capital LLC in Bernardsville, New Jersey.
"Calming words from the US Secretary of State helped ease market concerns over potential armed conflict with North Korea", said Michael McCarthy, chief market strategist at CMC Markets. Silver also rose, gaining 47 cents, or 2.8 percent, to $16.86 an ounce. The move added to escalating U.S. Tokyo's Nikkei 225 tumbled 1.3 percent to 19,738.71 while Seoul's Kospi fell 1.1 percent to 2,368.39.
Although Japan could be in the front line of any clash with North Korea, the yen is benefitting because Japan is the world's biggest creditor nation and Japanese investors tend to repatriate funds in times of stress, attracting other flows.
Dudley also cautioned that "it's going to take some time" for inflation to rise to the central bank's 2 percent target even as he offered a generally positive outlook for the USA economy, job market and price pressures.
Korea's Samsung Electronics fell 2.8% Friday and was down 6.1% on the week.
The dollar index, which tracks the greenback against a basket of six major rivals, was almost flat on the day at 93.646, remaining above last week's 15-month low of 92.548. It is set for a weekly gain of 2.4 percent.
OIL: Benchmark U.S. crude lost 24 cents to $48.37 per barrel on the on the New York Mercantile Exchange while Brent crude, used to price worldwide oils, declined 20 cents to $51.70 per barrel in London.
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