By Nigel Stephenson
LONDON (Reuters) - Shares and the dollar fell on Tuesday as a snap general election call in Britain added to a lengthening list of uncertainties for investors already on edge over tensions simmering from North Korea to France.
Wall Street also looked likely to open marginally lower, index futures showed, after stocks weakened in Europe and Asia.
Sterling rose nearly 1 percent against the dollar and UK shares hit 2 1/2-month lows after British Prime Minister Theresa May called an early parliamentary election for June 8.
Speaking outside her Downing Street office, May said she had decided "with reluctance" that an election was needed to secure political unity and stability as Britain negotiates its way out of the European Union.
The pound rose as high as $1.2678, reflecting relief that rumours she might resign proved unfounded. It last traded at $1.2673, up 0.8 percent on the day.
The FTSE 100 stocks index, already falling on its first trading day since the Easter break, fell further and was last down 1.8 percent, at its lowest since late February.
"I guess people see that this may give Theresa May a better majority. It is a politically astute move and it should provide more stability going over the immediate aftermath of the exit from the EU," said Simon Derrick, head of global market research at Bank of New York Mellon in London.
With market activity reduced in the past week due to Easter holidays, investors have focused on political factors that also include Syria and U.S. relations with Russia and China.
European shares fell on Tuesday. The pan-European STOXX 600 index, which hit 16-month highs last week, was down 0.9 percent, led lower by a 3 percent fall in the basic resources sector as commodity prices dropped.
MSCI's broadest index of Asia-Pacific shares outside Japan slipped by 0.7 percent, while Tokyo's Nikkei closed up 0.4 percent on earlier yen weakness.
The dollar declined 0.3 percent against a basket of major currencies. It earlier lifted off five-month lows versus the yen after U.S. Treasury Secretary Steven Mnuchin told the Financial Times that a strong dollar was a positive in the long term, while agreeing with U.S. President Donald Trump that it hurt exports in the short term.
The greenback traded at 108.76 yen, down 0.1 percent on the day, while the euro was up 0.4 percent at $1.0681.
FRENCH FOREBODING
Investor nervousness ahead of Sunday's French election made itself felt in currency and debt markets. French 10-year government bond yields initially rose while ultra-safe German equivalents dipped, taking the gap between the two close to six-week highs.
But French yields later fell while German yields edged up and the spread with Germany narrowed to its tightest in a week after an opinion poll put centrist Emmanuel Macron first in the first round of voting, just ahead of far-right, anti-euro candidate Marine Le Pen, with a bigger gap to far-left representative Jean-Luc Melenchon.
The cost of hedging against big moves in the euro against both the dollar and the yen over the next month jumped on Monday to their highest levels since Britain's vote in June 2016 to leave the European Union.
"Every poll that is coming out now is being scrutinised closely," said DZ Bank strategist Christian Lenk. "Nevertheless, markets remain very nervous ahead of Sunday."
Implied volatility in the STOXX 600 index hit its highest since early November 2016.
Turkey's lira rose against the dollar after Turkish President Tayyip Erdogan rejected Western criticism of a referendum in which he won sweeping new powers.
"The markets are taking this initial result as positive insofar the buck now stops with one person and in theory political noise should come down," Greg Saichin, CIO emerging markets fixed income at Allianz Global Investors said. He added that the next battleground would be Turkey's 2019 election.
Oil prices fell after a U.S. government report indicated U.S. shale production was rising. Brent, the international benchmark crude, fell 41 cents a barrel to $54.95.
Copper was down 0.8 percent at $$5,650 a tonne
Gold was marginally higher on the day at $1,285 an ounce, having touched a five-month high of $1,295 on Monday, the day after a failed North Korean ballistic missile launch.
(Additional reporting by Nichola Saminather in Singapore, Dhara Ranasinghe, Ritvik Cravalho and Claire Milhench in London; editing by Mark Heinrich)
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