* German exports post steepest drop in nearly a year
* North Korea conducts its largest nuclear test to date
* Increasingly risky to delay U.S. rate hike -Fed's
(Updates with U.S. markets)
By Rodrigo Campos
NEW YORK, Sept 9 Stocks across the globe fell
the most since June on Friday, weighed by German trade figures
that cast doubt on the strength of the euro zone's largest
economy and by investor concern after North Korea conducted its
fifth and most powerful nuclear test.
German exports fell sharply in July, shrinking the overall
trade surplus for the fourth consecutive month - something not
seen since 1992.
The euro peaked for the day shortly after the German data
and later dipped below $1.12, while the benchmark U.S.
Treasury yield touched its highest in 11 weeks.
Wall Street stocks were also hit after Boston Federal
Reserve President Eric Rosengren said "risks to the forecast are
becoming increasingly two-sided," meaning that while a slowdown
overseas remains a concern, the U.S. economy has proved
resilient and could even overheat if Fed policy remains
unchanged for too much longer.
"Certainly the posturing of the Fed is creating a lot of
noise, and when you get comments like that, it creates a little
bit of anxiety in the market," said Phil Blancato, CEO of
Ladenberg Thalmann Asset Management in New York.
North Korea conducted its fifth and biggest nuclear test on
Friday and said it had mastered the ability to mount a warhead
on a ballistic missile, ratcheting up a threat that its rivals
and the United Nations have been powerless to contain.
U.S. President Barack Obama, aboard Air Force One on his way
home from Laos, said the test would be met with "serious
"The timing of North Korea flexing their nuclear muscles is
interesting in that it comes on the heels of the leader of the
free world's trip to Asia," said Art Hogan, chief market
strategist at Wunderlich Securities in New York.
At 11:14 a.m. ET (1514 GMT), the Dow Jones industrial
average was down 194.56 points, or 1.05 percent, to
18,285.35, the S&P 500 had lost 25.67 points, or 1.18
percent, to 2,155.63 and the Nasdaq Composite had
dropped 60.77 points, or 1.16 percent, to 5,198.72.
Europe's FTSEuroFirst 300 index of leading shares
was down 1.1 percent, dragging it down 1.5 percent on the week.
The Stoxx 600 index was down 0.4 percent.
MSCI's broadest index of Asia-Pacific shares outside Japan
dropped 1.4 percent, its biggest fall in over a
month, after touching a 13-month high on Thursday. The decline
shrank gains for the week to 1.5 percent.
Japan's Nikkei closed flat after pulling back
earlier on reports of the North Korean nuclear test
. It was up 0.2 percent for the week.
The U.S. dollar rose after Rosengren's remarks ratcheted
expectations of a near-term increase in U.S. interest rates.
"Those hawkish comments from Rosengren helped the dollar;
also in general the probability of a September hike has gone up
a bit," said Vassili Serebriakov, FX strategist at Credit
Agricole in New York.
The dollar index, which tracks the U.S. currency
against a basket of six currencies, rose 0.4 percent to 95.43,
nearing its highest levels on Tuesday before a weak U.S. service
sector report knocked the dollar 1 percent lower.
The euro fell 0.4 percent against the dollar to
U.S. Treasury yields, with long-dated maturities reaching
more than two-month highs, in line with Japanese government
bonds, after reports suggested the Bank of Japan is considering
measures to cut short- to medium-term yields, while lifting
those of long-term debt.
The U.S. Treasury market has been moving in tandem with JGBs
over the last six months, analysts said, since Japanese
investors of late have been the biggest buyers of U.S.
The U.S. yield curve reached its steepest level in three
weeks at 85 basis points. That means the 10-year yield was 85
basis points higher than the two-year yield, a move driven by
the jump in longer-dated borrowing costs.
Oil prices pulled back after surging more than 4 percent on
Thursday. Brent fell 2.5 percent to $48.75, still up 4
percent this week, and U.S. crude retreated 2.4 percent
Gold was last at $1,334 an ounce, down 0.3 percent on
the day but still up 0.7 percent this week, the biggest weekly
gain in six.
(Reporting by Rodrigo Campos, additional reporting by Chuck
Mikolajczak, Gertrude Chavez-Dreyfuss and Dion Rabouin; Editing
by Nick Zieminski)