* N.Korea missile launch over Japan escalates tensions
* European shares hit six-month low at the open
* Asian shares fall in broad risk-off move
* Safe-haven yen, Swiss franc and gold all gain
* Euro above $1.20 as Draghi gives green light to bulls
By Danilo Masoni
MILAN, Aug 29 (Reuters) - World stocks tumbled and safe-haven assets jumped on Tuesday after North Korea fired a missile over northern Japan, fuelling worries of fresh tension between Washington and Pyongyang.
The pan-European STOXX 600 index fell more than 1 percent to a six-month low, also weighed down by the surge of the euro above a key level, while U.S. futures fell as much as 0.85 percent on the missile news before paring losses.
Japan’s Nikkei hit a four-month low before paring losses to end 0.5 percent down. South Korea’s Kospi, meanwhile, shed as much as 1.6 percent, helping to drag down MSCI’s broadest index of Asia-Pacific shares outside Japan by 0.5 percent.
“The North Korean escalation has triggered a significant risk-off move,” Alessandro Balsotti, head of asset management at JCI Capital Limited, said in his daily note to clients.
“However ... observers believe it won’t be enough to trigger a material reaction from the United States-South Korea axis. It wouldn’t be surprising, then, if investors take advantage of this geopolitical fear to buy the dips.”
North Korea fired a missile that flew over Japan and landed in the Pacific about 1,180 km (735 miles) off the northern region of Hokkaido in a sharp escalation of tensions on the Korean peninsula.
North Korea has conducted dozens of ballistic missile tests under young leader Kim Jong-Un, but firing projectiles over mainland Japan is his first.
“The missile flew across Japan this time, so the implications will likely be a bit different from previous ones,” said Hirokazu Kabeya, chief global strategist at Daiwa Securities.
North Korea threatened this month to fire missiles into the sea near the U.S. Pacific territory of Guam, host to major U.S. military installations, after U.S. President Donald Trump warned that Pyongyang would face “fire and fury” if it threatened the United States.
The dollar was down 0.6 percent at 108.63 yen after hitting its lowest level since mid-April despite Japan’s proximity to North Korea.
The yen tends to benefit during times of geopolitical or financial stress because Japan is the world’s biggest creditor nation and there is an assumption that Japanese investors will repatriate funds should a crisis materialize.
Also the safe-haven Swiss franc strengthened, with the dollar falling 0.6 percent to a one-month low against the Swiss currency.
Though the risk-averse mood prevailed broadly across financial markets, the euro appeared immune to the geopolitical news.
The single currency surged above 1.20 to the dollar , breaching a key level as investors grew bullish about its outlook after the head of the European Central Bank refrained from talking about the currency’s recent strength and in the backdrop of brewing U.S. fiscal problems.
“The market is still digesting Draghi’s comments from Jackson Hole and the U.S. outlook is looking difficult with concerns around the budget and a looming shutdown,” said Esther Maria Reichelt, an FX strategist at Commerzbank in Frankfurt.
Gold prices jumped 0.85 percent to $1,321 an ounce, hitting its highest level in more than nine months and rising for a third straight session.
The metal also drew support from uncertainty surrounding the Trump administration after remarks last week raised fears of a government shutdown.
Investors also rushed to the safety of U.S. Treasuries, pushing down the 10-year yield to a low of 2.102 percent , its lowest since mid-November, while the yield on Germany’s 10-year government bond fell 3 basis points to 0.34 percent, the lowest since June 28.
“Financial markets think the only realistic option for the U.S. and North Korea will be to sit down and talk at some point because other options are too costly for everyone involved,” said Masayoshi Kichikawa, chief strategist at Sumitomo Mitsui Asset Management.
“But no one can rule out the risk of accidents. Markets think the chicken game will continue for now and North Korea will remain a risk,” he added.
Crude oil prices bounced back a tad on the back of supply disruptions in Colombia and Libya, a day after U.S. crude futures dropped on worries that refinery shutdowns caused by flooding could boost inventory.
U.S. West Texas Intermediate (WTI) crude futures rose 0.26 percent to $46.69 a barrel after falling to as low as $46.15 in the previous session.
U.S. gasoline price, which surged as much as 7 percent to a two-year peak of $1.7799 a gallon on Monday, traded at $1.7263 in early Tuesday trade.
Additional reporting by Hideyuki Sano in Tokyo and Dahee Kim in Seoul; Editing by David Goodman