While you were sleeping: Dow tumbles 234pts, bonds rally

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

At the close of trading in New York, the Dow Jones Industrial Average fell 234.25 pints, or 1.1%, to 21,753.31. The high-erforming Nasdaq Composite Index shed 0.9% to 6375.57 while the Standard & Poor's 500 Index dropped 0.8% to 2457.85.

US Treasuries climbed, sending yields on the 10-year note nine basis points lower to 2.072%, the lowest since November 9.

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

The CBOE Volatility Index, a measure of expected swings in the S&P 500, jumped 21%.

"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 United Technologies and Goldman Sachs, down 5.3% and 3.7% respectively. Bucking the trend, Wal-Mart and Home Depot rose 1.7% and 1.4% respectively.

US dollar weakens
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," she 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. In that case, it would be prudent to raise the federal funds rate more gradually."

In Europe, the Stoxx 600 Index ended with a 0.1% slip from the previous close. France's CAC 40 Index declined 0.3%, the UK's FTSE 100 Index fell 0.5% and Germany's DAX Index rose 0.2%.

Investors will closely watch European Central Bank policy makers who gather on Thursday to discuss the future of the bond-buying programme.

Shares of Switzerland's Barry Callebaut rose after the world's largest cocoa processor unveiled the first new natural colour for chocolate since Nestlé started making bars of white chocolate more than 80 years ago, according to Bloomberg.

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

(BusinessDesk)