By Hilary Russ
NEW YORK (Reuters) - Wall Street stocks fell on Tuesday, Treasury yields recorded their steepest one-day drop since May and the dollar slipped as investors shied away from risk following North Korea's biggest nuclear bomb test yet.
The drop in major U.S. markets, which had been closed for Monday's Labor Day holiday, followed that day's global sell-off amid international condemnation of Sunday's nuclear test.[.N][.EU]
The Dow Jones Industrial Average <.DJI> fell 234.25 points, or 1.07 percent, to 21,753.31, the S&P 500 <.SPX> lost 18.7 points, or 0.76 percent, to 2,457.85 and the Nasdaq Composite <.IXIC> dropped 59.76 points, or 0.93 percent, to 6,375.57.
MSCI's gauge of stocks across the globe <.MIWD00000PUS> shed 0.37 percent.
"The market cares deeply about the geopolitical situations and this shows it. The two selloffs we've had have truly been about North Korea," said J.J. Kinahan, chief market strategist at TD Ameritrade in Chicago.
Remarks by Federal Reserve Governor Lael Brainard, who said inflation was "well short" of target and suggested the U.S. central bank should be cautious about raising interest rates, also sent the dollar lower.
The dollar fell as much as 1 percent against the safe-haven Japanese yen and was on track for its biggest decline in eight days against a basket of currencies.
The dollar index <.DXY> fell 0.35 percent while the yen
U.S. markets also fretted about Irma, rated as a dangerous Category 5 hurricane, which could reach the southern United States this weekend only days after Harvey caused damage estimated in the scores of billions of dollars in Texas and Louisiana.
"It's definitely North Korea. It's partly Irma. You are looking at another possible hit to our economy," said Karl Haeling, vice president at Landesbank Baden-Wurttemberg in New York.
The yield on benchmark 10-year U.S. Treasury notes
In Europe, markets also ended also lower, with stocks cutting morning gains and investors shifting into bonds [GVD/EUR] and the yen.
The pan-European FTSEurofirst 300 index <.FTEU3> lost 0.12 percent.
Signs of rising inflation pressure in euro zone data put the focus back on Thursday's meeting of the European Central Bank and its plans to reduce its stimulus program. [/FRX]
Gold, the traditional go-to for traders when political concerns escalate, climbed to a one-year high as safe-haven buying demand remained robust. [nL2N1LM1TP][GOL/]
South Korea's Asia Business Daily, citing an unidentified source, reported that North Korea had moved what looked like an intercontinental ballistic missile toward its west coast, possibly in preparation for a launch.
Seoul said it had struck an agreement with the United States that would allow it to beef up the size and potency of its warheads.
Speaking at a summit of the world's biggest emerging economies in China, Russian President Vladimir Putin again warned that threatening military action against North Korea could trigger "a global catastrophe."
U.S. oil prices rose and gasoline fell as the gradual restart of refineries in the Gulf of Mexico, which had been shut by Hurricane Harvey, eased fears of a fuel supply crunch.[O/R]
U.S. gasoline prices
For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
Graphic - World FX rates in 2017: http://tmsnrt.rs/2egbfVh
Graphic - Nuclear North Korea interactive: http://tmsnrt.rs/2lE5yjF
(Reporting by Hilary Russ in New York; Additional reporting by Sam Forgione, Richard Leong, Libby George and Chuck Mikolajczak in New York; Editing by Dan Grebler and James Dalgleish)