While you were sleeping: Wall St tumbles, Treasuries rally

Trader Michael Milano works on the floor of the New York . Photo / AP

Wall Street slid while US Treasuries rallied as investors returned from a long weekend during which geopolitical tensions intensified following North Korea's biggest nuclear test.

In 3.36pm trading in New York, the Dow Jones Industrial Average dropped 1.1 per cent, while the Nasdaq Composite Index shed 1 per cent. In 3.21pm trading, the Standard & Poor's 500 Index declined 0.9 percent.

US Treasuries climbed, sending yields on the 10-year note nine basis points lower to 2.07 per cent.

US financial markets were closed for the Labour Day holiday on Monday.

"North Korea seems to be what gets the biggest reaction, at least over the last month or two," Aaron Jett, vice president for global equity research at Bel Air Investment Advisors in Los Angeles, told Reuters.

"It's basically just a risk-off day," Jett noted. "There is no data, no earnings, nothing really fundamental to move the market today, so it sells off when there's a scary headline again."

The Dow fell, led by declines in shares of United Technologies and those of Goldman Sachs, down 5.3 per cent and 3.7 per cent respectively. Bucking the trend, shares of Wal-Mart and thsoe of Home Depot rose, up 1.7 per cent and 1.4 per cent recently for the largest percentage gains in the Dow.

The US dollar weakened following dovish comments by Federal Reserve Governor Lael Brainard, who said both overall and core inflation for the year through July were "well short" of the Federal Open Market Committee's objective.

"My own view is that we should be cautious about tightening policy further until we are confident inflation is on track to achieve our target," Brainard said in a speech at The Economic Club of New York.

"I am concerned that the recent low readings for inflation may be driven by depressed underlying inflation, which would imply a more persistent shortfall in inflation from our objective," according to Brainard. "In that case, it would be prudent to raise the federal funds rate more gradually."

In Europe the Stoxx 600 Index ended the day with a 0.1 per cent slip from the previous close. France's CAC 40 Index declined 0.3 per cent and the UK's FTSE 100 Index fell 0.5 per cent.

Germany's DAX Index rose 0.2 per cent.

Investors will closely watch European Central Bank policy makers who gather on Thursday and are set to discuss the future of the central bank's bond-buying program. Shares of Switzerland's Barry Callebaut rose after the world's largest cocoa processor unveiled the first new natural colour for chocolate since Nestle started making bars of white chocolate more than 80 years ago.

While it has a pinkish hue and a fruity flavour, the Zurich-based company prefers to refer to it as "ruby chocolate," and has a natural berry flavour that's sour yet sweet, Bloomberg reported.