World stock markets spiralled lower on Tuesday after North Korea fired a ballistic missile over Japan, deepening geopolitical worries but sending the euro and gold hurtling higher.

Pyongyang fired the missile over Japan and into the Pacific Ocean, in a major escalation that triggered global alarm and a furious response from Tokyo. 

Investor sentiment was also battered by monster storm Harvey in Texas, where it swamped streets and highways with unprecedented rainfall.

"The combination of North Korea's missile launch and the devastating impact of Harvey is weighing on risk appetite today," Oanda analyst Craig Erlam told AFP.

"Any increase in geopolitical risk, particularly involving North Korea, triggers a move to safety in markets as investors become increasingly concerned about the potential for things to escalate rapidly. 

"The damage caused in Houston is also weighing on sentiment, due to both the sheer devastation it has caused and the uncertainty over the cost and economic impact."

The shock developments sent investors fleeing for traditional safe-haven assets like the yen, gold, and US treasuries.

The yen surged to four-month dollar peak and precious metal gold forged a path to a nine-month pinnacle at $1,326.16 per ounce.

The euro topped $1.20 for the first time since January 2015, as traders also bet on the winding down of eurozone crisis-era stimulus measures and eyed growing economic optimism in the region.

The single currency touched $1.2070 -- which was the highest level since January 5, 2015.

However, Asian and European stock markets crumbled as investors dumped risky equities.

- 'Flight to quality' -

"Rising geopolitical tensions have prompted a flight to quality, benefiting safe haven assets at the expense of risk markets," NFS Macro analyst Nick Stamenkovic told AFP.

"The main beneficiaries have been US Treasuries, gold and the yen as investors flock to safety at least near term."

At the same time, the greenback has been hampered by ongoing uncertainty over US President Donald Trump's tax-cutting plans, as well as North Korea developments.

"Euro/dollar has hit its highest level since the first trading day of 2015 today and broken through the psychological $1.20 level along the way," added Erlam.

"It seems geopolitical risk and the devastation in Houston have turned people away from the dollar."

The greenback had already been suffering selling pressure as expectations for another Federal Reserve interest rate rise faded in recent weeks.

Meanwhile, Tuesday's missile test is the latest in a series of recent provocations by Pyongyang, testing US President Donald Trump, his South Korean counterpart Moon Jae-In and Japanese Prime Minister Shinzo Abe and raising fresh fears of conflict with the nuclear-armed nation.

Back in the US, Harvey had battered into Texas as a Category Four hurricane on Friday, tearing down homes and businesses on the Gulf Coast, and triggering massive floods. It was later downgraded to a tropical storm.

 - Key figures around 1030 GMT - 

London - FTSE 100: DOWN 1.3 percent at 7,304.90 points

Frankfurt - DAX 30: DOWN 1.8 percent at 11,901

Paris - CAC 40: DOWN 1.5 percent at 5,005.60

EURO STOXX 50: DOWN 1.4 percent at 3,372.20

Tokyo - Nikkei 225: DOWN 0.5 percent at 19,362.55 (close)

Hong Kong - Hang Seng: DOWN 0.4 percent at 27,765.01 (close)

Shanghai - Composite: UP 0.1 percent at 3,365.23 (close)

New York - Dow: FLAT at 21,808.40 (close)

Euro/dollar: UP at $1.2062 from $1.1978 at 2100 GMT on Monday

Pound/dollar: UP at $1.2964 from $1.2933

Dollar/yen: DOWN at 108.45 yen from 109.26 yen

Oil - Brent North Sea: DOWN 34 cents at $51.53 per barrel

Oil - West Texas Intermediate: DOWN four cents at $46.53