By Saqib Iqbal Ahmed
NEW YORK (Reuters) - Global equity prices slipped and investors flocked to safe-haven assets on Tuesday after North Korea fired a missile over northern Japan, fueling fresh tension between Washington and Pyongyang.
The dollar fell to its lowest in more than 2-1/2 years against a basket of major currencies, benchmark 10-year Treasury yields fell and gold hit a more-than-nine-month peak.
North Korea fired a ballistic missile over Japan's northern Hokkaido island into the sea on Tuesday, prompting a warning from U.S. President Donald Trump that "all options are on the table" as the United States considers its response.
MSCI's world index, which tracks shares in 46 countries, fell to a one-week low as a dip in risk appetite dominated Asian and European stock markets.
U.S. stocks pared losses after opening sharply lower.
"This is a long-term diplomatic issue that will be with us for a while," said Art Hogan, chief market strategist at Wunderlich Securities. "But our interpretation of the present danger ebbs and flows with Trump's response. With a more measured response from the administration, rather than the 'fire and fury' comment that we'd seen earlier, we see a less-dramatic effect on the market."
The Dow Jones Industrial Average rose 11.02 points, or 0.05 percent, to 21,819.42, the S&P 500 lost 2.72 points, or 0.11 percent, to 2,441.52 and the Nasdaq Composite added 3.32 points, or 0.05 percent, to 6,286.34.
Rising geopolitical tensions and a surging euro sent European shares to their lowest in six months and the pan-European STOXX 600 was down 1 percent, set for its worst daily performance in two months.
Benchmark 10-year Treasury yields fell as low as 2.086 percent, the lowest since Nov. 10, on safety buying, before edging back up to 2.1171.
Gold, which is considered a good store of value during volatility in other markets, jumped to its highest since November.
"Funds and traders are filling their boots with gold at the moment and so far that's justified," said Ole Hansen, head of commodity strategy at Saxo Bank in Copenhagen.
Spot gold was up 0.6 percent to $1,317.31. Other precious metals, including silver and platinum, also gained.
In currency markets, the missile launch in part prompted short-term speculators such as macro hedge funds to buy back yen in an unwind of so-called "carry" trades, said Sireen Harajli, foreign exchange strategist at Mizuho in New York.
Carry trades involve investors borrowing a low-yielding cheap currency like the yen to fund purchases of riskier and higher-yielding currencies.
Harajli also said Japanese savers have been buying back the yen by selling non-yen assets in recent months, potentially given concerns about the U.S. political environment, making those savers a possible source of the yen's gains on Tuesday.
The greenback was down 0.38 percent against the yenat 108.83 yen, after falling as much as 0.9 percent earlier to a 4-1/2-month low of 108.28 yen.
The dollar index, which measures the greenback against a basket of six major currencies, was 0.29 lower at 91.943, after hitting 91.621, its lowest since mid-January 2015.
Crude oil prices slipped lower as the market grappled with the shutdown of 13 percent of refining capacity in the United States after a hurricane ripped through the heart of the country's oil industry.
Brent crude was down 0.4 percent at $51.68 a barrel, while U.S. crude was down 1.59 percent at $45.83.
(Reporting by Saqib Iqbal Ahmed; Additional reporting by Sam Forgione in New York, Eric Onstad in London, Sruthi Shankar and Tanya Agrawal in Bengaluru; Editing by Dan Grebler)
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