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Art Cashin: Traders worried about North Korean missiles breaking up over cities

  • "If they keep testing the missiles, the markets are concerned that they fly over a populated area and come apart," Art Cashin says.
  • Cashin adds no one on Wall Street believes the U.S. will start a military confrontation with North Korea.
  • He also says investors are a little worried about Hurricane Irma.

Stocks are falling Tuesday on worries that another missile launch by North Korea could result in an accident, closely followed trader Art Cashin told CNBC.

"If they keep testing the missiles, the markets are concerned that they fly over a populated area and come apart. You know, drop a piece of a missile into an apartment building or somewhere where it raised the ante in this greatly," Cashin, UBS' director of floor operations at the New York Stock Exchange said on "Squawk Alley."

He added no one on Wall Street believes the U.S. will start a military confrontation with North Korea.

The three major U.S. stock indexes were lower Tuesday as tensions between the U.S. and North Korea sent jitters down Wall Street after Pyongyang‎ on Sunday set off its most powerful nuclear bomb yet.

In response, Nikki Haley, U.S. ambassador to the United Nations, warned the U.N. Security Council that North Korea is "begging for war." The Trump administration urged its allies to use all possible diplomatic measures and impose urgent economic sanctions to prevent a war.

Cashin also said investors are a little worried about Hurricane Irma, which strengthened into a highly dangerous Category 5 storm Tuesday as it barreled toward the Caribbean and the southern United States.

"You're already seeing orange juice futures and cotton and a variety of other things starting to move up. So, you've got that out there also," he said.

Cashin said perhaps stocks haven't fallen further because there is still some hope for President Donald Trump's business-friendly agenda and that Congress will act on the debt ceiling.

"We're going to find out pretty fast," Cashin said. "if they don't want to raise this debt ceiling, it'll be a bit of a problem."

He also said to remember that the day after Labor Day is historically a great day for "fake outs."