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War of words intensifies

Investors shudder after Trump’s second warning to Korea

Donald Trump

Trump: second warning

Afternoon update: The FTSE 100 index was down 0.84% to 7,328 points at 3pm, staying on track for its worst week since March following growing tensions in the Pacific region.

Heavyweight miners Antofagasta Rio Tinto , BHP Billiton, Anglo American and Glencore fell between 3.6 to 5%, the biggest fallers on the index as tensions between the US and North Korea hit riskier assets, including metals prices. The broader UK mining sector fell 3.6%.

Asian equity markets were again on the slide overnight as US President Donald Trump turned up the rhetoric on North Korea.

Wall Street closed sharply lower after he warned Pyongyang against attacking Guam or US allies.

His comments came after North Korean leaders disclosed plans to fire missiles over Japan to land near the US Pacific territory.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.55%, its biggest one-day loss since mid-December and on course for a 2.5% drop this week.Hong Kong’s Hang Seng was 1.9% lower. Japanese markets were closed for a holiday.

Analysts expect the sell-off to spread to European markets which are sitting on record highs and investors may see the current tensions as a trigger to lock-in profits.

There is now a growing view that after shrugging off the early rhetoric investors can no longer ignore the potential for conflict, however limited.

The prospect of China being drawn into the simmering stand-off is also alarming markets, though US officials are insisting that a diplomatic solution will be found.

Trump’s threat earlier this week, to unleash “fire and fury” on Pyongyang if it attacked, was ultimately dismissed as bluster by many investors.

His second warning has made many of them sit up and take notice that he may mean to follow up with his threats.

The dollar widened losses against the yen to hit a two-month low. The yen is perceived as a safe haven because Japan is the world’s biggest creditor country and investors there have tended to repatriate funds in times of crisis.

Disappointing US inflation and jobs data have not helped the dollar.

US crude was down 0.9% at $48.16 per barrel, on track for a weekly loss of 2.9%. Brent also lost 0.9% to $51.44, after Thursday’s 1.5% drop. It is poised to end the week down 1.9%.

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