* Graphic: World FX rates in 2017 http://tmsnrt.rs/2egbfVh
* MSCI world share index falls for third day on N.Korea tensions
* Demand for yen, gold remains
* Benchmark 10-year Treasury yield near 6-wk low
* Kiwi dollar dives as RBNZ chief gives intervention promise
By Marc Jones
LONDON, Aug 10 (Reuters) - World stocks fell for a third day on Thursday and investors moved again into the Swiss franc, yen and gold, prompted by the war of words between the United States and North Korea.
Markets saw a tentative recovery in risk appetite in overnight U.S. and early Asian trading, but anxiety mounted again as Asian stocks fell back and London .FTSE , Frankfurt .GDAXI and Paris .FCHI dropped 0.5-1.2 percent in Europe. .EU
Currency traders consolidated positions in the Japanese yen JPY=EBS and Swiss franc CHF= , and pushed up the dollar index .DXY by unwinding some of the recent bets on the euro. EUR= /FRX
Although Japan could be in the front line of any clash with North Korea, the yen is benefitting because Japan is the world's biggest creditor nation and Japanese investors tend to repatriate funds in times of stress, attracting other flows.
The euro was down 0.3 percent at just over $1.17 and nearing a two-week low, while the New Zealand dollar NZD=D4 tumbled a full 1 percent as its central bank head bluntly said he wanted it lower. saw a tentative recovery in risk appetite yesterday from the sell off inspired by North Korea but I think, justifiably that move is fading a little bit today," said Saxo Bank's head of FX strategy John Hardy.
Overnight North Korea dismissed as a "load of nonsense" warnings by U.S. President Donald Trump that it would face "fire and fury" if it threatened the United States. It outlined detailed plans for a missile strike near U.S. territory Guam. which is more than 3,000 km (2,000 miles) to the southeast of North Korea, is home to about 163,000 people and a U.S. Navy base that includes a submarine squadron and a Coast Guard group, and an air base.
"Sound dialogue is not possible with such a guy bereft of reason and only absolute force can work on him," a report by the North's state-run KCNA news agency said of Trump.
With the rhetoric rumbling on, Europe's top-rated German bond yield held near six-week lows. U.S. US10YT=RR and British equivalents GB10YT=RR were also trading a touch above Wednesday's six-week lows. GVD/EUR
Analysts said yields, which move inversely to prices, could fall further if the tensions build further, even if central bankers in the United States continue to talk of raising interest rates of scaling back stimulus programmes.
"We would currently be careful with a whiff of risk aversion in the air and, by extension, also stay away from shorts in the rates market," RBC's global macro strategist Peter Schaffrik said.
GOLD, IODINE, MISSILES
The market's main safe-haven, gold, hit a two-month high of 1278 an ounce. GOL/ Oil also regained momentum as data pointed to declining U.S. inventories. Brent crude LCOc1 was up 30 cents at $53.00 a barrel. O/R
Sociedad Quimica y Minera de Chile, one of the world's largest producer of iodine - a substance used to combat radiation - has seen its share price increase by over a third since the start of July. SQM.N
U.S. missile makers Raytheon RTN.N and Lockheed Martin (NYSE:LMT) LMT.N have outperformed Wall Street by almost 4 percent in recent days. .N
"Most investors will be completely out of their depth in making any assessment on the (North Korea) situation," said Koon Chow, emerging market FX strategist at fund manager UBP. "Therefore one shouldn't make a big call." For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets