GLOBAL MARKETS-Global stocks on defensive as U.S.-China tensions spook investors

* U.S. stock futures retreat
* Dollar near 2-year low as U.S. economic outlook pales
* Gold near record high hit in 2011
* Asian stock markets: https://tmsnrt.rs/2zpUAr4

By Hideyuki Sano
TOKYO, July 27 (Reuters) - U.S. stock futures slipped and
Asian shares came under pressure in early Monday trade as
tit-for-tat consulate closures in China and the United States
fanned worries about worsening diplomatic ties between the
world's two largest economies.
S&P500 futures ESv1 dropped 0.2% while Nasdaq futures
NQv1 lost 0.3%. Japan's Nikkei .N225 fell 1.3%, re-opening
after a long weekend.
MSCI's broadest index of Asia-Pacific shares outside Japan
.MIAPJ0000PUS was flat.
Global shares lost steam late last week after Washington
ordered China's consulate in Houston to close, prompting Beijing
to react in kind by closing the U.S. consulate in Chengdu.
U.S. Secretary of State Mike Pompeo took fresh aim at China
last week, saying Washington and its allies must use "more
creative and assertive ways" to press the Chinese Communist
Party to change its ways. "U.S. President (Donald) Trump used to say China's President
Xi Jinping is a great leader. But now Pompeo's wording is
becoming so aggressive that markets are starting to worry about
further escalation," said Norihiro Fujito, chief investment
strategist at Mitsubishi Securities.
Hopes of a quick U.S. economic recovery are fading also as
coronavirus infections showed few signs of slowing. That means the economy could capitulate without fresh
support from the government, with some of earlier steps such as
enhanced jobless benefits due to expire this month.
Investors hope U.S. Congress will agree on a deal before its
summer recess but there are some sticking points including the
size of stimulus and enhanced unemployment benefits.
U.S. Treasury Secretary Steve Mnuchin said the package will
contain extended unemployment benefits with 70% "wage
replacement". Democrats, who control the House of Representatives, want
enhanced benefits of $600 per week to be extended and look to
much bigger stimulus compared with the Republicans' $1 trillion
plan.
In addition to stimulus developments, investors are looking
to corporate earnings from around the world for hints on the
pace of recovery in the global economy.
Concerns about the U.S. economic outlook started to weigh on
the dollar, reversing its inverse correlation with the economic
well-being over the past few months.
The dollar index USD= stood at its lowest level in nearly
two years at 94.337.
The euro changed hands at $1.16525 EUR= having hit a
22-month high of $1.16590 as sentiment on the common currency
improved after European leaders reached a deal on a recovery
fund in a major step towards more fiscal co-operation.
Against the yen, the dollar slipped 0.2% to 105.93 yen
JPY= , near Friday's four-month low of 105.68.
Gold rose 0.4% to $1,910.0 per ounce XAU= , near its record
high of $1,920.4 touched in September 2011, as Sino-U.S.
tensions boosted the allure of safe haven assets, especially
those not tied to any specific country.
Oil prices dipped in early trade on worries about the
worsening relations.
Brent futures LCOv1 fell 0.46% to $43.14 per barrel while
U.S. crude futures CLc1 lost 0.44% to $41.11.

(Editing by Sam Holmes)