European and Asian stocks decline after missile test, with FTSE 100 down 0.36% and South Korea’s main index 1.2% lower

Escalating tensions between the US and North Korea have rattled the financial markets as they reopened, as the prospect for nuclear war drove investors into safe haven assets.

Despite no sign of immediate military action, the crisis is creating a “risk off” mood in the markets. European stocks fell on Monday, with the FTSE 100 slipping 0.36% and the European Stoxx 600 down 0.52%.

Asia markets declined, with South Korea’s main index closing down 1.2% and Japan’s Nikkei losing almost 1%. Naeem Asla, of Think Markets – a spreadbetting firm, said the troubles in Pyongyang did “not present a stable environment for investing”.

The US stock market was closed on Monday for the Labor Day holiday. Elsewhere, however, gold prices rose to their highest levels in almost a year as investors bought safe-haven assets. Gold was up 0.7% an ounce at $1,333 (£1,031) but Brent crude fell 1% to $52.23 a barrel.

German bond yields dipped to their lowest levels in more than four months, while the Swiss franc, often regarded among investors as a safer bet in turbulent times, rose 0.7% against the dollar.

On the currency markets, it was a poorer day for the pound. It fell against the euro and the dollar as economic data showed the UK construction industry was flirting with recession.

Andrew Kenningham, chief global economist at the consultancy Capital Economics, said: “Provided the worst is avoided, similar reactions are likely in the coming months, but they should generally be short-lived. As long as outright war is avoided, global asset prices are likely to prove resilient.”