LONDON MARKETS: U.K. Stocks Knocked Sharply Lower After North Korea Launches Missile Over Japan

By Carla Mozee, MarketWatch Features Dow Jones Newswires

Insurers fall as analysts begin calculating the costs of Storm Harvey

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U.K. stocks dropped sharply Tuesday, as part of a selloff in global equity markets after North Korea launched a ballistic missile over Japan.

The FTSE 100 index fell 1% to 7,326.43. No sector moved higher. Trading in the U.K. was closed Monday for the August Bank Holiday.

Roughly 12 components on the London benchmark were higher in afternoon trade, and those advancers were led by miners Randgold Resources Ltd. (RRS.LN) (RRS.LN) and Fresnillo PLC (FRES.LN) as gold shot above $1,300 an ounce to around an 11-month high (http://www.marketwatch.com/story/gold-hits-11-month-high-as-another-north-korea-missile-sparks-haven-flight-2017-08-29). Randgold jumped 5.2% and Fresnillo climbed 3.4%.

The moves came after Pyongyang launched a missile (http://www.marketwatch.com/story/north-koreas-outrageous-missile-launch-over-japan-inflames-tensions-again-2017-08-29) early Tuesday local time that passed over the northern Japanese island of Hokkaido and landed in the Pacific Ocean. It was the first missile fired over the main lands of Japan since 2009.

"This has understandably seen an overnight preference for safe havens such as gold, the Swiss franc, Japanese yen and bonds, at the expense of equities," said Accendo Markets head of research Mike van Dulken, adding that the missile launch undermines attempts by the U.S. to negotiate with North Korea's leader Kim Jong Un.

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"Beware the impact of additional [U.S. dollar] weakness (2.5 year lows), which could weigh on both the U.K. FTSE and German DAX by way of a stronger [pound] and [euro]," he said.

The pound bought $1.2951, compared with $1.2933 late Monday in New York. A stronger pound can hurt shares of multinational companies as they make the bulk of their sales and earnings overseas. Shares of drug maker GlaxoSmithKline PLC (GSK.LN) (GSK.LN) fell 1.6% and British American Tobacco PLC (BATS.LN)(BATS.LN) gave up 1.6%.

The euro rose above $1.20 for the first time since January 2015. The Stoxx Europe 600 during the session slid more than 1% to a six-month low.

But the sterling trade-weighted index on Tuesday fell 0.4% to 74.50, revisiting levels last seen in November. That's a "reflection of both euro strength & pound softness," said Howard Archer, chief economic adviser to EY ITEM Club, in a Twitter post Tuesday.

Insurers: Shares of insurers dropped as analysts gauged the potential toll on the industry from Hurricane Harvey, which hit the U.S. Gulf Coast in recent days. On the midcap FTSE 250, Hiscox Ltd. (HSX.LN) slumped 2.5%, Lancashire Holdings Ltd. (LRE.LN) lost 3% and Beazley PLC (BEZ.LN) fell 2.7%. The companies are Lloyd's of London insurers.

Insured losses, based on precedent, could come in between $4 billion and $12 billion, excluding personal home flood claims that will be absorbed by the U.S. government's National Flood Insurance Program, Peel Hunt analyst Andreas van Embden wrote in a Tuesday research note.

"The main uncertainty is around commercial property and business interruption claims, particularly now the Houston metropolitan area is being affected by floods," said van Embden.

Harvey made landfall on Friday as a Category 4 hurricane. The now-tropical storm is expected to return to the Houston area late Tuesday or Wednesday.

Harvey "is unlikely to be a market-turning event but enough to start to eat into the [catastrophe] budgets and expose the vulnerable underlying returns the Lloyd's insurers are generating in the current soft market, with risk adjusted returns between 10%-11%," van Embden added.

Read:Congress has less than 5 weeks to reauthorize the National Flood Insurance Program (http://www.marketwatch.com/story/harvey-is-a-reminder-congress-has-less-than-5-weeks-to-reauthorize-the-national-flood-insurance-program-2017-08-28)

Also:Harvey set to pummel flooded Houston once again (http://www.marketwatch.com/story/harvey-set-to-pummel-flooded-houston-once-again-2017-08-29)

Economic data: U.K. house prices fell 0.1% on the month in August (http://www.marketwatch.com/story/uk-home-prices-reverse-monthly-rise-nationwide-2017-08-29), following a modest increase the previous month, according to Nationwide figures released Tuesday.

Shares of home builders Persimmon PLC (PSN.LN) and Taylor Wimpey PLC (TW.LN) each fell 0.7%, and Barratt Developments PLC (BDEV.LN) slipped 0.3%.

(END) Dow Jones Newswires

August 29, 2017 09:58 ET (13:58 GMT)