By Rodrigo Campos
NEW YORK (Reuters) - Sterling jumped alongside gold, while stocks and the U.S. dollar fell on Tuesday after Britain called a snap election for June, adding to investor concerns over geopolitical instability.
The British pound rallied as much as 2.7 percent against the U.S. dollar to hit its highest level since early October after British Prime Minister Theresa May surprised markets by calling for an early parliamentary election.
Graphic: World FX rates in 2017 - http://fingfx.thomsonreuters.com/gfx/rngs/GLOBAL-CURRENCIES-PERFORMANCE/0100301V041/index.html
Graphic: Global assets in 2017 - http://pdf.reuters.com/pdfnews/pdfnews.aspi=43059c3bf0e37541&u=2016-01-22T105919Z_GFXEC1M0UIVRJ_1_RTRGFXG_BASEIMAGE.htm
Graphic: Global bonds dashboard - http://fingfx.thomsonreuters.com/gfx/rngs/GLOBAL-BONDS-DASHBOARD/010030SJ1PL/index.html
A poll giving centrist independent Emmanuel Macron the lead ahead of the first round of France's presidential election boosted the euro. Polls have for months shown far-right leader Marine Le Pen and Macron qualifying this Sunday for the May 7 run-off, but it remains a contested, four-way vote with conservative Francois Fillon and far-left candidate Jean-Luc Melenchon.
The possibility of U.S. military action against North Korea remained on investors' minds, as well.
On Wall Street, disappointing quarterly results from corporate heavyweights Goldman Sachs and Johnson & Johnson dragged major stock indexes lower.
Investors are also concerned that the recent flaring of geopolitical tensions has shifted focus away from expected business-friendly reforms in the United States, seen as the fuel for the U.S. equity rally that peaked in early March.
"We seem caught in the back and forth in the uncertainty around the (Trump) administration’s plans," said Rick Meckler, president of investment firm LibertyView Capital Management in Jersey City, New Jersey.
"The movements you have seen over the past couple of weeks has been just a slow loss of some confidence that this is headed in the direction it seemed to be right after the election."
The Dow Jones Industrial Average (.DJI) fell 113.64 points, or 0.55 percent, to 20,523.28, the S&P 500 (.SPX) lost 6.82 points, or 0.29 percent, to 2,342.19 and the Nasdaq Composite (.IXIC) dropped 7.32 points, or 0.12 percent, to 5,849.47.
Earlier, the pan-European FTSEurofirst 300 index (.FTEU3) lost 1.21 percent and MSCI's gauge of stocks across the globe <.MIWD00000PUS> shed 0.40 percent.
Emerging market stocks lost 0.60 percent. MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> closed 0.81 percent lower, while Japan's Nikkei (.N225) rose 0.35 percent.
The pound rallied as British Prime Minister May called for an early election on June 8, saying she needed to strengthen her hand in divorce talks with the European Union.
"The way the market is reading it, it is viewed as something that creates a more stable political outlook for Brexit to happen, which in itself is viewed as a positive," said Alvise Marino, FX strategist at Credit Suisse in New York.
Weighing on the dollar were also bank comments: while Deutsche Bank said the surprise UK election call is a "game-changer" for sterling, Goldman Sachs analysts exited long dollar bets against the euro and pound, citing a pickup in global growth.
The dollar index (.DXY) fell 0.77 percent, with the euro (EUR=) up 0.85 percent to $1.073.
The euro got extra support from the latest French election poll showing Macron leading ahead of the first round.
The Japanese yen strengthened 0.36 percent versus the greenback at 108.52 per dollar, while sterling (GBP=) was last trading at $1.2844, up 2.25 percent on the day.
Oil prices were weighed by concerns that U.S. production growth is undermining efforts to cut oversupply after a U.S. government report said shale oil output in May was expected to post the biggest monthly increase in more than two years.
U.S. crude (CLcv1) fell 0.06 percent to $52.62 per barrel and Brent (LCOcv1) was last at $55.09, down 0.49 percent on the day.
U.S. Treasury yields fell as nervousness ahead of France’s first round of presidential elections and ongoing geopolitical tensions increased demand for safe-haven U.S. debt.
Benchmark 10-year notes
Gold rose and was not far from an intraday five-month high touched on Monday, bolstered by the weaker dollar, North Korea tensions and the French presidential election.
Spot gold (XAU=) added 0.4 percent to $1,289.47 an ounce. U.S. gold futures (GCcv1) fell 0.05 percent to $1,291.30 an ounce.
Copper (CMCU3) lost 2.11 percent to $5,572.00 a tonne.
(Additional reporting by Karen Brettell, Fergal Smith, Jessica Resnick-Ault, Chuck Mikolajczak and Saqib Iqbal Ahmed in New York; Editing by Nick Zieminski and Dan Grebler)