* Seoul, Tokyo stock markets bear brunt of sell-off
* Dollar broadly lower, yen and Swiss franc gain
* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh
By Patrick Graham
LONDON, Sept 4 (Reuters) - Stocks and the dollar fell on Monday while the Japanese yen, gold and sovereign bonds rose after North Korea's most powerful nuclear test to date dampened investor appetite for risk.
Sunday's test, and reports from Seoul that Pyongyang was preparing for another missile launch, sparked warnings from Washington and drove South Korea's stock market 1.2 percent lower. Japan's Nikkei lost almost 1 percent.
With Wall Street closed for the Labor Day holiday at the start of a week likely to become increasingly dominated by a number of central bank meetings, the fall in European stocks was less marked.
The pan-European STOXX 600 index lost 0.4 percent, led by a 0.7 percent fall in banks.
"The markets’ reaction seems similar to when missile launches have taken place in the past. Investors sell stock, rush to safe havens, assess the situation, and then buy the dips as tension eases," said Hussein Sayed, chief market strategist at brokers FXTM.
The dollar, down 0.3 percent against the basket of currencies used to measure its broader strength, fell 0.6 percent to 109.60 yen, having been as low as 109.22 and off a whole yen from late on Friday.
Investors tend to buy the yen in time of political or market tension on expectations Japanese investors will over time repatriate their money.
The Swiss franc, also viewed as a safe place to park money, rose 0.8 percent to 0.9579 per dollar.
Driven by the Korean losses, MSCI's broadest index of Asia-Pacific shares outside Japan slipped 0.7 percent.
Yields on German government bonds, regarded as among the world's lowest-risk assets, fell slightly. Benchmark 10-year yields were down 1 basis point at 0.37 percent while two-year yields dipped a similar amount to minus 0.76 percent, their lowest since April.
Safe-haven gold was up 0.8 percent at $1,336 an ounce, having risen to $1,339.47, its highest in nearly a year.
Tom Kendall, head of precious metals strategy at ICBC Standard Bank, saw potential for gold to rally further.
"We've got the geopolitics and we've also got a fairly benign interest rate environment. There's still nothing threatening coming out of the Fed recently," he said.
European Central Bank policymakers meet on Thursday, with expectations of any major shift towards reining in its bond-buying stimulus programme fading in recent weeks.
The euro's almost 14 percent rally against the dollar this year has stalled on signs that ECB officials were growing more concerned with the gains - and might wait far longer to tighten policy as a result.
The euro gained 0.4 percent but is almost 2 cents below the 2-1/2-year high it hit last week.
"The trend in recent months has been for knee-jerk risk-averse reactions to geopolitical events to be followed by a gradual recovery in risk sentiment as global monetary accommodation has its usual pacifying effect in markets," said Societe Generale strategist Kit Juckes.
"A repeat of that pattern seems eminently possible this week."
The dollar took some support on Friday from a strong ISM report on U.S. factories, which produced the highest reading since April 2011.
That was just the latest sign that global production was gaining traction and added to bullishness on industrial metals. Copper hit $6,920.25 a tonne, its highest in three years, particularly on the putlook for Chinese demand.
The metal was last up 1.2 percent at $6,914.
In the oil market, prices were subdued as shutdowns of U.S. production following Harvey were balanced by an expected downturn in crude demand as the tropical storm knocked out refineries along the Gulf of Mexico.
Brent crude, the international benchmark, fell 9 cents to $52.66 a barrel.
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
Additional reporting by Wayne Cole in Sydnet, Danilo Masoni in Milan, Dhara Ranasinghe, Saikat Chatterjee, Eric Onstad and Nigel Stephenson in London; Editing by Alison Williams