Hong Kong - Asian stocks tumbled with the South Korean won on Monday while the safe haven yen rallied on news that North Korea had tested what it claimed was a miniaturised hydrogen bomb, ramping up tensions on the peninsula.
Less than a week after it rattled global markets by firing a rocket over Japan, Pyongyang on Sunday conducted its sixth nuclear test, sparking further condemnation and a warning from defence secretary Jim Mattis of a "massive military response" from the US.
On Sunday in the United States, the White House said President Donald Trump stands ready to use the country's "full range of diplomatic, conventional, and nuclear capabilities" if North Korea continues to threaten it or its allies.
Trump earlier denounced the test, tweeting that the time for "appeasement" was over and threatening drastic economic sanctions, including "stopping all trade with any country doing business with North Korea".
"It seems (North Korean leader) Kim Jong-un shows no signs of conciliation," said Greg McKenna, chief market strategist at AxiTrader.
North Korea "seems hell bent on either goading the United States, and its president, into a response or what it thinks will be an embarrassing back down."
The latest flare up sent investors fleeing for safe assets, with the yen climbing to 109.73 to the dollar and gold up 0.7% to sit above $1 330. The won sank 0.8% against the dollar.
Dollar pressure
On equity markets Seoul shed 0.7% and Japan's Nikkei ended the morning session 0.9% down as the stronger yen hurt exporters. Hong Kong slipped 0.4% and Sydney shed 0.3%, while Singapore gave up 0.4%.
However, Shanghai wiped out early losses to rise 0.2% in mid-morning trade.
"It's all eyes on dollar-yen this morning, as it's expected this latest NK aggression, could further intensify geopolitical tensions," said Stephen Innes, head of Asia-Pacific trading at OANDA.
"The key now is how the international community will respond given how ineffective the tightened UN sanctions have been at discouraging North Korea's ambitions."
Sunday's test was of a device that could be put on an intercontinental missile that could reach the United States, North Korea claimed.
Adding to pressure on the dollar was a below-expectations read on US jobs creation for August, which raised questions about the chances of a third Federal Reserve interest rate hike before the end of the year.
However, the greenback was holding its own against the euro after a report said the European Central Bank (ECB) could put off a decision on the future of its bond-buying stimulus programme until the end of the year.
The single currency has enjoyed a rally this year as a string of positive data from the eurozone fanned speculation the ECB would soon announce plans to begin scaling back the scheme.
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