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European stocks fall as caution over geopolitical tensions lingers

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U.S. Dollar Index

US stock index futures were lower on Friday as the escalating war of words with North Korea drove investors to seek safety in low-risk assets.

Reflecting a drop in prices for services, the Labor Department released a report on Thursday showing an unexpected decrease in USA producer prices in the month of July.

Reuters data show a 22 per cent perceived chance for a rate increase after the Fed's December meeting.

Simmering tensions between the US and North Korea continued to weigh on investors.

The president continued tweeting on Friday, saying that military solutions to the crisis are "locked and loaded".

Overnight, the Dow added to losses from the prior session on Wednesday, as investors fled risky assets amid rising geopolitical tensions after North Korea ignored President Trump's warning that further threats to the United stated "will be met with fire and fury".

Baker Avenue's Lip said the USA market was higher due to "bargain hunters", but "there's more room for the market to come down".

"Trump has upped the ante so the market is having to price in possible military intervention", said Jasper Lawler, head of research, at London Capital Group, in a note. Sydney's S&P-ASX 200 gained 0.5 percent to 5,773.70 while Manila and Jakarta also rose.

In Europe, the pan-continental STOXX 600 index lost 0.9 percent, with falls deepening after reports a auto had rammed a group of soldiers in Paris, injuring six. But for the week the S&P 500 lost 1.3 percent, its worst weekly showing since March.

Over the five days, the S&P 500 dropped 1.43 percent, one basis point shy of the year's biggest weekly drop, posted in March.

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South Korea's benchmark Kospi index fell 1.69%. "Pretty remarkable, perhaps even extraordinary, considering", said Tim Ash, strategist at fund manager BlueBay.

European stock markets fell further in opening trade on Friday on intensifying fears over North Korea, dealers said.

The market slide accelerated slightly in the last half-hour of trading as Trump denounced North Korea's nuclear program.

The VIX rose further on Wednesday, rising as far as 12.11, its highest in nearly a month.VIX.

Instead, investors turned to the traditional safe-haven assets sought in troubled times, the Japanese yen strengthened 0.5 percent to 109.73 to the dollar JPY=.

The Dow Jones industrial average lost 123 points, or 0.6 percent, to 21,923.

Aside from geopolitical concerns, gold-focused investors are awaiting USA inflation data set to be released on Friday (August 8).

"If the data continues to come in on the softer side, the market might start to price the Fed staying on hold this year", said Sireen Harajli, FX strategist at Mizuho in NY. "We're not very oversold yet so the market still has more downside left to it".

And in bond markets, 10-year U.S. Treasuries and Germany's ultra-safe government bonds, known as Bunds, were trading at their highest prices since June.

Gold prices closed up around 1.48% at $1,281.30 per ounce on Wednesday.

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