World stocks drop in wake of NKorea missile tests

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World stocks fell Tuesday as investors worried that the recent rally may be overdone and were unsettled by the geopolitical tensions in Asia, where North Korea test-fired two missiles just a day after its nuclear test.

In European afternoon trading Germany's DAX 30 was 1.4 percent lower at 4,849.37 and Britain's FTSE 100 was down 0.9 percent at 4,325.09. France's CAC 40 fell 1.4 percent at 3,192.40.

Futures markets forecast a drop on the U.S. open. Dow industrial average futures were down 40 points at 8,220.00 while Standard & Poor's 500 futures were down 3.9 points at 881.00.

European shares followed Asia lower after North Korea, defying international criticism, followed up Monday's test of a nuclear bomb by firing two short-range missiles from its east coast.

The move came after the U.N. Security Council condemned the country's nuclear test as a "clear violation" of international bans.

Mitul Kotecha, head of global forex strategy at Calyon, said the news of the missile tests "reverberated through markets overnight." Although its impact has been relatively limited so far, "reports that North Korea is preparing to launch more missiles over coming days may keep markets nervous," he said.

Beyond the geopolitical incident, the market selloff was also due to investors taking a breather from the weeks-long rally which had been fueled by hopes that the worst of the economic recession is past.

With more downbeat economic news in recent days — including fears of credit ratings downgrades on major economies like the U.S. and U.K. — traders' optimism has become clouded and markets have been looking for direction.

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