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Investors play safe on rising U.S. tensions with Syria, North Korea

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A man looks at an electronic board showing market indices outside a brokerage in Tokyo

A man looks at an electronic board showing market indices outside a brokerage in Tokyo, Japan, March 2, 2016. REUTERS/Thomas Peter/Files

By Sinead Carew

NEW YORK (Reuters) - Anxious investors sought shelter in gold, Treasuries and the yen on Tuesday after reports that Syrian warplanes dropped barrel bombs on rebel-held areas a day after the United States said their use could lead to further U.S. strikes in Syria.

Also, North Korea state media warned of a nuclear attack on the United States if provoked, as a U.S. Navy strike group moved toward the western Pacific en route to the Korean peninsula.

U.S. stock indexes were down in afternoon trading but still above session lows after the Syrian Observatory for Human Rights report of the bombing, which a Syrian military source denied.

The United States and other countries blamed Syrian President Bashar al-Assad for a deadly gas attack last week and U.S. President Donald Trump responded by firing cruise missiles at a Syrian air base while Russian President Vladimir Putin has stood by Moscow's ally Assad, who denies blame.

"There's some questions now in the market if Trump's going to change his policy and work for the ouster of Assad and there's tensions with the Russians, not to mention North Korea," said Paul Christopher, head global market strategist for Wells Fargo Investment Institute in St. Louis, Missouri.

On top of political concerns investors also have last Friday's weak U.S. payroll number weighing on them ahead of the first-quarter GDP report next week, according to Christopher, who says stocks have already priced in the year's economic growth.

"Investors should get accustomed to uncertainty because of U.S. foreign policy questions and trade questions," as well as uncertainty over tax reform here, he said. "The market will see good days and bad days and end the year roughly where it is."

The Dow Jones Industrial Average (.DJI) was down 22.85 points, or 0.11 percent, to 20,635.17, the S&P 500 (.SPX) lost 6.02 points, or 0.26 percent, to 2,351.14 and the Nasdaq Composite (.IXIC) dropped 22.78 points, or 0.39 percent, to 5,858.14.

U.S. Treasury yields were down for a second day as international tensions boosted demand for low-risk assets.

However, yields lifted from earlier lows after soft results from a $20 billion 10-year note supply, part of this week's $56 billion in coupon-bearing U.S. government bond auctions.

The benchmark 10-year Treasury note yield was last down 4 basis points at 2.323 percent, while the 30-year bond yield was at 2.955 percent, 3 basis points lower than late on Monday.

The dollar index (.DXY), which measures the greenback against a basket of currencies, was down 0.3 percent. The U.S. dollar (JPY=) was down 1 percent against the Japanese yen while the euro strengthened against the yen with a 0.1 percent rise. The euro (EURJPY=) hit an almost five-month low versus the yen earlier in the day.

Gold (XAU=) last traded up 1.6 percent on the day at almost $1,274.26 an ounce and hit its highest point since November 11. It was on track for its biggest one-day rise since March 15.

Oil reversed course to end the day higher after reports that Saudi Arabia told OPEC officials it wants to continue OPEC cuts for an additional six months.

Global benchmark Brent (LCOc1) settled up 0.5 percent at $56.23 a barrel in its seventh straight day of gains. U.S. crude (CLc1) settled up for the sixth day in a row with a 0.6 percent rise to $53.40.

(Additional reporting by Richard Leong, Jessica Resnick-Ault and Dion Rabouin in New York and Kit Rees, John Geddie, Ritvik Carvalho and Nigel Stephenson in London; Editing by Frances Kerry and James Dalgleish)