By Harry Robertson

LONDON (Reuters) -Government bonds and the Japanese yen rallied on Tuesday, while stocks fell, as investors bought safe-haven assets after President Vladimir Putin updated Russia’s nuclear doctrine amid escalating tensions with the United States over Ukraine.

Putin said Russia could consider using nuclear weapons if it was subject to a conventional missile assault supported by a nuclear power, after the United States allowed Ukraine to fire American-made long-range missiles deep into Russia.

Investors were also reacting to reports that Ukraine attacked Russian territory with U.S.-made ATACMS missiles, although the moves in bonds, currencies and stocks later moderated.

The 10-year U.S. Treasury yield fell to a one-week low of 4.345%, and was last down 4 basis points (bps) at 4.373%.

Germany’s 10-year yield fell as much as 10 bps but was last 4 bps lower at 2.331%. Yields fall as prices rise.

Meanwhile the Japanese yen, long seen as a safe haven at times of stress, rallied 0.7% and was last 0.4% higher at 154.08 per dollar.

“The market’s movement appears to be driven by this morning’s news about changes to Russia’s nuclear doctrine,” said Michael Weidner, co-head of global fixed income at Lazard Asset Management.

“The market is reacting strongly now,” Weidner said at 1000 GMT. “This safe-haven trade is evident across various asset classes, with a strong bid in the dollar, Swiss franc, and even to some extent in gold.”

The Swiss franc rose around 0.25% against the euro, while the dollar index – which tracks the U.S. currency against six peers – picked up by 0.16% to 106.40. Gold was last up 0.9% at $2,636 per ounce.

MISSILE ATTACK

European shares extended losses, with the region-wide STOXX 600 falling more than 1% to a three-month trough and last standing 0.78% lower.

U.S. stock futures fell before rebounding slightly, with those for the S&P 500 down 0.23% and the Nasdaq 0.11% lower.

Russian news agencies reported on Tuesday that Ukraine had launched an attack on the Russian Bryansk region overnight with six U.S.-made long-range missiles, citing the Defence Ministry, which said the attack resulted in no casualties or damage.

“Seeing clear risk-off moves on the Russian nuclear doctrine change and Ukraine ATACMS attack within Russia headlines,” said Arne Petimezas, director of research at AFS Group in Amsterdam.

Ukraine’s sovereign dollar bonds shed nearly 2 cents.

Investors on Tuesday were also awaiting President-elect Donald Trump’s pick for Treasury secretary, with the pool widening to include Apollo Global Management Chief Executive Marc Rowan and former Federal Reserve Governor Kevin Warsh.

U.S. bond yields and the dollar have risen sharply since the election as markets have positioned for tariffs and tax cuts that could potentially push up inflation and lead to fewer Fed rate cuts. Investors are eager to see how forcefully any Treasury pick might push these policies.

The Japanese yen was also supported by comments from Japanese Finance Minister Katsunobu Kato, who reiterated on Tuesday that the government would “respond appropriately to excessive moves” in the yen exchange rate.

Oil prices dipped, with Brent crude futures down 0.37% to $73.04 a barrel, while U.S. West Texas Intermediate crude futures at $68.76 a barrel, down 0.28%.

(Reporting by Harry Robertson; additional reporting by Lawrence White, Danilo Masoni, Alun John and Samuel Indyk; Editing by Sam Holmes, Christina Fincher, Mark Heinrich and Alex Richardson)

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