GLOBAL MARKETS-Shares slide on fear trade spat morphs to a tech cold war

(Adds close of U.S. markets)
* Dollar hits two-year high, safe-haven yen also gains
* Government debt yields tumble on growth worries, trade
fears
* Oil extends losses, biggest decline in six months
* World FX rates in 2019 http://tmsnrt.rs/2egbfVh

By Herbert Lash
NEW YORK, May 23 (Reuters) - World shares skidded further on
Thursday and oil prices plunged more than 5% as investors
worried the China-U.S. trade spat was turning into a technology
cold war between the world's two largest economies, boosting the
dollar and knocking benchmark government debt yields down.
Worries over German manufacturing, trade-sensitive Asian
economies, Brexit and European parliamentary elections led
investors to flee riskier assets and buy perceived safe-havens.
The dollar at one point hit its highest level in two years
against a basket of six major currencies .DXY and the euro
slumped to levels last seen in May 2017 as a recovery in euro
zone business activity was weaker than expected.
Stocks tumbled on Wall Street and yields on the benchmark
10-year U.S. Treasury note fell below 2.30% to the lowest since
October 2017 as an early read of U.S. manufacturing data for May
posted its weakest pace of growth in nearly a decade.
Equity investors, encouraged by low interest rates, had been
hoping for the best since U.S.-China trade talks soured, said
Michael O'Rourke, chief market strategist at JonesTrading in
Greenwich, Connecticut.
As of Wednesday's close, the S&P 500 was just 3% off its
record closing high on April 30.
"You're seeing asset classes respond to the risk and they
have been for the couple of weeks," O'Rourke said. "Now that
it's become clear that the risks are out there, the (equity)
market has to price them in. There should be more downside."
Asian stocks fell overnight to a four-month low and European
shares sank, with Germany's trade-sensitive DAX .GDAXI down
1.8% and Italian shares .FTMIB more than 2% lower. MSCI's gauge of stocks across the globe .MIWD00000PUS shed
1.3% while the FTSEurofirst 300 index .FTEU3 of leading
European shares closed down 1.42%.
On Wall Street, the Dow Jones Industrial Average .DJI fell
286.14 points, or 1.11%, to 25,490.47. The S&P 500 .SPX lost
34.03 points, or 1.19%, to 2,822.24 and the Nasdaq Composite
.IXIC dropped 122.56 points, or 1.58%, to 7,628.28.
Investors worry the U.S.-China trade dispute could escalate.
U.S. Secretary of State Mike Pompeo accused Chinese telecom
giant Huawei Technologies HWT.UL of lying about its ties to
the government. Beijing said Washington must end its "wrong
actions" if it wants trade talks to continue. Japanese conglomerate Panasonic Corp 6752.T joined a
growing list of multinationals that have said they are
disengaging from Huawei, the largest telecom-gear maker and
second-largest seller of smartphones. Reuters reported on Wednesday the U.S. administration was
considering Huawei-like sanctions on Chinese video surveillance
firm Hikvision 002415.SZ over the country's treatment of its
Uighur Muslim minority. The U.S. military also said it had sent two Navy ships
through the Taiwan Strait. "It's tin hats on and battening down the hatches for a fair
bit of volatility for the next few months," said Tony Cousins,
chief executive of Pyrford International, the global equities
arm of BMO Global Asset Management.
One of few markets to escape the turmoil was India. Its main
stock market .BSESN touched an all-time high after Prime
Minister Narendra Modi's party scored a historic election
victory. Official data showing Modi's Bharatiya Janata Party
(BJP) ahead in 292 of the 542 seats available. The rupee also climbed but that, too, was an outlier.
Investors piled into the dollar as a relative safe haven
because of its importance in the global economy and the extra
cushion of high U.S. interest rates compared to other developed
economies. The dollar hit a high of 98.371 against a basket of six
major currencies .DXY , its highest since May 2017, but then
pared gains. The euro EUR= rebounded after touching $1.1109 as
slower growth raised the prospect that the Federal Reserve may
cut U.S. interest rates.
The Japanese yen JPY= strengthened 0.72% versus the
greenback at 109.54 per dollar.
U.S. Treasury yields dropped across the board as risk
appetite faded and Germany's 10-year bond yield fell further
into negative territory after a survey showed business activity
in the bloc was weaker than expected in May. IHS Markit's PMI, a guide to economic health, nudged up to
51.6 from a final April reading of 51.5, but was below market
expectations for 51.7. The benchmark 10-year U.S. Treasury note US10YT=RR rose
23/32 in price to push its yield down to 2.3115%.
Germany's 10-year government bond yield fell three basis
points to minus 0.114% DE10YT=RR .
Oil prices tumbled more than 5% as trade tensions dampened
the demand outlook, leading the crude benchmarks to their
biggest daily declines in six months.
Brent crude futures LCOc1 , the international benchmark,
settled down $3.23 at $67.76 per barrel, and was trading down
$3.00 at $67.99.
U.S. West Texas Intermediate (WTI) crude futures CLc1 fell
$3.51 to settle at a two-month low of $57.91 per barrel.
Gold prices jumped 1 percent as the dollar pulled back from
a two-year peak scaled earlier in the session.
U.S. gold futures GCcv1 rose 0.9 percent to $1,285.50 an
ounce.

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GRAPHIC-Asia stock markets https://tmsnrt.rs/2zpUAr4
GRAPHIC-Asia-Pacific valuations https://tmsnrt.rs/2Dr2BQA
GRAPHIC-Global assets in 2019 http://tmsnrt.rs/2jvdmXl
GRAPHIC-World FX rates in 2019 http://tmsnrt.rs/2egbfVh
GRAPHIC-MSCI All Country World Index Market Cap http://tmsnrt.rs/2EmTD6j
GRAPHIC-China trade shock interactive https://tmsnrt.rs/2SRopIf
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