LONDON - The North Korean nuclear crisis dragged stock markets further into the red on Wednesday, as world powers struggled to agree how to deal with the isolated state, while doubts about further US interest rate hikes hit the dollar.

With few other catalysts to deflect attention from the face-off with Pyongyang, investors continue to flock to haven assets, sending gold to near one-year highs and the yen flying.

Investors were meanwhile awaiting the European Central Bank's regular policy meeting on Thursday.

The head of Germany's biggest lender, Deutsche Bank, John Cryan, urged the ECB to end its easy-money policy to avoid inflating market bubbles and relieve struggling eurozone lenders.

For now, though, the focus remained firmly on North Korea.

"Global stock markets appear to be in a period of nervous uncertainty, as the threat of another North Korean test looms large over any investors wishing to invest in risky assets," said Joshua Mahony, market analyst at IG trading group.

"The clear indecision evident throughout the Asian session has translated into a... downside for European indices."

UN Secretary General Antonio Guterres has warned against "confrontational rhetoric" towards Kim Jong-Un's regime and called for a single strategy to address the crisis following the test of a massive nuclear device on Sunday.

While the heated rhetoric of the previous two days has cooled, there are fears of a fresh flare-up as the North is feared to be preparing another missile launch to mark its foundation day on Saturday.

US markets returned from their long Labor Day weekend on Tuesday to finish sharply lower and US Treasury yields are at one-year lows. In Asia on Wednesday, equity markets continued to fall, but pared the big morning losses.

The dollar, already down against the safe-bet yen on geopolitical concerns, took another hit from comments by Federal Reserve officials playing down the chances of a third rate hike of the year and worries about a looming hurricane in the Atlantic.

Fed governor Lael Brainard said the central bank had continued to miss its two percent inflation target for the past year and added: "My view is that we should be cautious about tightening policy further until we are confident inflation is on track to achieve our target."

"Geopolitical risks around North Korea continue to weigh on the market while Fed governor Brainard's comments linked to inflation fears as well as worries over Irma, the next mega hurricane after Harvey, are also undermining" the dollar, Kengo Suzuki, chief foreign exchange strategist at Mizuho Securities, told AFP.

Adding to the sense of unease is concern about US President Donald Trump's chances of pushing through his tax reform plans, with Capitol Hill already struggling with a crammed legislative calendar.

And Trump's decision Tuesday to end an amnesty programme for 800,000 people brought to the United States illegally as young children will add to the backlog.

Oil prices extended gains after surging Tuesday when WTI jumped around three percent and Brent put on two percent on reports that Russia and Saudi Arabia were considering extending a production cut.

Also refineries that were forced to shut owing to Hurricane Harvey began to come back online in the US Gulf Coast, helping clear a backlog of the commodity.

Eyes are now on the release of US crude inventory data from industry group the American Petroleum Institute due Wednesday, which precedes US government figures a day later.