By Jon Sindreu 
   -- Italian government bonds continue to sell off 
 
   -- Treasury yields edge down further below the 3% mark 
 
   -- Oil prices down 

Stocks recovered Friday after North Korea's measured response to the U.S. cancellation of a landmark summit.

But political risk was worrying investors elsewhere, with yields on the 10-year Italian government-bond rising to their highest level since 2014, with the spread versus German debt going above 2 percentage points for the first time since June 2017 -- a reflection of worries about the new Italian antiestablishment government.

"We are avoiding Italian risk because there's a contagion fee there," said Angus Sippe, a fund manager at Schroders, an asset manager with about $600 billion under management. "In the [eurozone] periphery, you clearly see political risk."

The Stoxx Europe 600 was up 0.5% in early European trade, as futures pointed to 0.2% and 0.3% opening gains for the S&P 500 and the Dow Jones Industrial Average, respectively. In Asia, Chinese and South Korean indexes edged down, and Japan's Nikkei Stock Average closed up 0.1%.

Equity markets around the world had closed broadly down Thursday after President Donald Trump called off a much-awaited summit between Washington and Pyongyang citing "open hostility" from North Korea, just as the Commerce Department said the U.S. administration was considering new tariffs on vehicles and auto-parts imports.

But North Korea's response was softer than many analysts were expecting, with officials saying in a statement they remained willing "to sit down face-to-face with the U.S. and resolve issues anytime and in any format."

Money managers have started to pay much closer attention to a raft of geopolitical concerns over the past few weeks -- after brushing them off earlier in the year -- including tensions between the U.S. and Korea, the potential of a U.S.-China trade war and developments in Italy once again testing the resilience of the eurozone.

"The emerging policy of Italy's new government is unlikely to trigger a new sovereign debt crisis. But it does highlight once again the fundamental differences in thinking on economic policy within the euro area," Ralph Solveen, an economist at German lender Commerzbank AG, told clients in a research note Friday.

Italy's FTSE MIB was flat on the day, even as broader European stocks powered ahead. Italian banks like Banco BPM SpA, Unione di Banche Italiane SpA and Intesa Sanpaolo SpA led losses in Europe.

But many investors remain convinced that these rekindled tensions are driven by a new aggressive negotiating style favored by upstart politicians -- including Mr. Trump -- but that they are unlikely to cause disruption in the longer term.

"What I have been seeing for the past 6 months is that there are a lot more opportunities than there was last year, there's just more stuff happening," said Christian Ryther, manager of Curreen Capital Management, who has been adding risk to his portfolio.

So far, despite some wobbles, the S&P 500 is up 0.6% on the week and 3% on the month.

"I think you'd be manic if you tried to buy things based on what's tweeted out all time," said Sandy Villere, manager of the Villere Balanced Fund, who believes the true focus remains the stronger dollar and higher Treasury yields.

This is "going to be good for the small-caps rather than the multinationals with a lot of exports," Mr. Villere added.

The WSJ Dollar Index, which measures the U.S. dollar against a basket of currencies, was broadly unchanged Friday, while 10-year Treasury yields edged down to 2.971% -- further below the 3% mark -- from 2.981% Thursday.

In commodities, Brent crude, the global oil benchmark, fell 0.7% to $77.97 a barrel after Russian officials said large oil producers could relax global production caps.

In currencies, the Turkish lira was down 0.4% against the dollar, a further sign that the central bank's recent emergency measures, including an interest-rate rise and moves to help exporters repay dollar-denominated loans, haven't been able to dispel investors' concerns.

Write to Jon Sindreu at jon.sindreu@wsj.com

(END) Dow Jones Newswires

May 25, 2018 05:48 ET (09:48 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.