GLOBAL MARKETS-Stocks wilt as bond markets flash recession warnings

* Euro STOXX 600 .STOXX falls 1%
* MSCI world equity index down 0.2%
* U.S. 2-year and 10-year Treasury yield gap inverts
* Trump delays tariffs on some China imports, boosts
sentiment
* Crude oil prices slip after previous day's big surge
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

(Updates prices; adds inverted bonds; Markets.com comment)
By Tom Wilson
LONDON, Aug 14 (Reuters) - Stock markets slumped on
Wednesday as Germany's economy went into reverse, fuelling fears
of global recession and slamming the brakes on a rally for
equities after Washington delayed tariffs on some Chinese
imports.
Europe's biggest economy shrank 0.1% in the second quarter
as the trade war and weak demand dragged on German
manufacturers. The euro zone as a whole barely grew in the same
quarter, with the 19-country bloc adding 0.2% - a slowdown from
the first three months of the year. The Euro STOXX 600 .STOXX fell 1%. Markets in London
.FTSE , Frankfurt .GDAXI and Paris FCHI lost between 0.8%
and 1.5%. Wall Street futures gauges were also indicating losses
of around 0.7%.
The MSCI world equity index .MIWD00000PUS , which tracks
shares in 47 countries, lost 0.2%, surrendering by late morning
its earlier gains. Bond markets, too, were flashing warning
signals of recession.
The gap between U.S. two-year and 10-year Treasury yields -
a metric closely watched for signs of a slowdown - inverted for
the first time since 2007, raising the spectre of a global
recession.
"The telling thing is that there is a delayed effect -
traditionally you see a one-to-two-year lag before a recession.
You could see it next year," said Neil Wilson, chief markets
analyst at Markets.com.
"The fact that 2s10s has also gone this way is a massive red
warning light for the U.S. economy," he said, referring to the
inverted yield of U.S. Treasuries.
The gap between UK two- and 10-year bonds also inverted for
the first time in over a decade, while U.S. 30-year bonds and
German 10-year bunds fell to record lows.
The German figures - along with data showing the slowest
growth for Chinese industrial output in 17 years that indicated
faltering demand in the world's second-largest economy - knocked
the wind out the sails for stocks and gave rise to the angst
over a slowdown.
Equity investors on Wall Street and in Asia had cheered
earlier when U.S. President Donald Trump pushed back to December
a Sept. 1 deadline for new tariffs on remaining Chinese imports.
The S&P 500 .SPX , which had fallen 1% on Monday, rose 1.5%
overnight, buoying Asian stocks outside Japan .MIAPJ0000PUS by
0.5%. Benchmarks in Shanghai, Hong Kong, Tokyo and Seoul all
mirrored the surge in U.S. stocks.
But the momentum ebbed in Europe, as optimism faded that
Trump's move meant tensions were easing and Germany's slowdown
showed the damage already done by the trade war.
"The trade war and the dispute between U.S. and China has
already had an impact - especially when you look at countries
most sensitive to global trade like Germany and even Italy,"
said Christophe Barraud, chief economist and strategist at
Market Securities in Paris.
In another sign the trade dispute is hampering growth,
China's industrial output slowed more than expected in July. Its
4.8% growth was the lowest since February 2002. The Japanese yen JPY=EBS , considered a safe haven, gained
0.6% to 106.13 per dollar, as the Chinese data underscored the
effects of the trade war on the powerhouse economy.
Mirroring that view, the offshore Chinese yuan CNH=EBS
fell 0.4% against the dollar to 7.0337, erasing gains made the
day before and remaining weaker than the 7 to the dollar it
reached last week.
In commodity markets, oil prices fell after the Chinese data
from China and a rise in U.S. crude inventories, erasing some of
the gains made after Trump's tariff delay.
Brent crude LCOc1 was down 80 cents, or 1.4%, at $60.47 a
barrel at 1053 GMT, after rising 4.7% on Tuesday, its biggest
percentage gain since December.
For Reuters Live Markets blog on European and UK stock
markets, please click on: LIVE/

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Yuan ticks lower https://tmsnrt.rs/2YNVA6s
Bonds https://tmsnrt.rs/2YN5XYj
China industrial output https://tmsnrt.rs/2YOpAiC
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