Yen, bonds and gold all up after North Korea nuclear test

By Wayne Cole

SYDNEY (Reuters) - The Japanese yen, gold and sovereign bonds all rose early on Monday as North Korea's latest nuclear test provoked the usual knee-jerk shift to safe havens, while futures pointed to a difficult day for global equities.

The dollar was marked down as deep as 109.22 yen at the opening, off a whole yen from late on Friday, but there was no follow-through selling and it was last at 109.76.

Japan is the world's largest creditor nation and traders tend to assume Japanese investors would repatriate funds at times of crisis, thus pushing up the yen. Many wonder, however, if Japanese assets would really remain in favor if an actual shooting war broke out in Asia.

Nikkei futures , for instance, pointed to an opening drop of around 0.7 percent for Japanese stocks.

North Korea on Sunday conducted its sixth and most powerful nuclear test, which it said was of an advanced hydrogen bomb for a long-range missile, prompting the threat of a "massive" military response from the United States if it or its allies were threatened.

Speaking outside the White House after meeting with President Donald Trump and his national security team, U.S. Defense Secretary Jim Mattis said Trump asked to be briefed on all available military options.

"Markets continue to treat each North Korean escalation as being the same as the previous instance, buying the yen, Swiss franc, treasuries and gold while selling the Aussie dollar - but not on a large scale," said Sean Callow, a senior forex strategist at Westpac.

"Assuming the worst on the Korean peninsula has not proven to be a winning trading strategy this year," he added. "Investors seem reluctant to price in anything more severe than trade sanctions, and the absence of another 'fire and fury' Trump tweet has helped encourage markets to respond warily."

The dollar slipped to 0.9603 Swiss francs from 0.9646, and was off 0.15 percent against a basket of currencies at 92.672. The euro was a shade firmer at $1.1878 .

Gold also benefited, with a 0.8 percent increase to a 10-month peak of $1,335.80 .

In the futures markets, the U.S. Treasury 10-year contract <0#TY:> climbed 6 ticks in early trade, while E-Mini futures for the S&P 500 dipped 0.4 percent. U.S. markets will be closed on Monday for the Labor Day holiday.

Wall Street ended last week on a mildly positive note after a tepid U.S. jobs report kept expectations muted for another interest rate hike this year.

The Dow ended Friday <.DJI> with a gain of 0.18 percent, while the S&P 500 <.SPX> added 0.20 percent and the Nasdaq <.IXIC> 0.1 percent.

U.S. job growth slowed more than expected in August after two straight months of hefty increases. Non-farm payrolls increased by 156,000 last month, while economists had forecast an increase of 180,000.

On a brighter note, the Institute for Supply Management reported its factory activity index soared to 58.8 in August, the highest reading since April 2011.

Following the mixed data, Fed fund futures <0#FF:> implied around a 39 percent chance that the Federal Reserve could raise rates at its December meeting.

In the commodities market, oil prices were mixed in early Asian trade. U.S. crude added 7 cents to $47.36 a barrel, while Brent crude eased 28 cents to $52.47.

(Reporting by Wayne Cole in Sydney; Editing by Peter Cooney)