* Gold, German bunds at 6-week highs as safe assets thrive
* U.S. stocks set to open lower, European shares hit
* Sterling stays steady as polls narrow before UK election
* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh
(Adds quotes, updates prices)
By Abhinav Ramnarayan
LONDON, June 6 U.S. Treasury yields and the
dollar dropped to seven-month lows on Tuesday and world stocks
slid as political uncertainty from the United States to the
Middle East and weakness in commodity markets pushed investors
away from risky assets.
The yen and gold also gained amid prevailing caution as an
Arab rift opened up around Qatar, and ahead of testimony from
the former head of the FBI, a British election and the European
Central Bank's next move which all happen on Thursday.
Wall Street was expected to open around 0.3 percent lower
for what would be a second day of losses after both
European and Asian stocks had fallen during their sessions.
The dollar, meanwhile, was at its weakest since November
against other top world currencies as U.S. government
bond yields fell below 2.15 percent, their lowest
since Donald Trump's election last year.
"We've had a little bit of a cooling off in equities
following the breaking of links with Qatar - a lot of people
think it may force oil prices lower and remove some of the
inflationary pressures," said RBC economist Cathal Kennedy.
"As those pressures ease, it pushes out the horizon for
interest rate rises."
On what BayernLB analysts called "Super Thursday", British
voters will also go to polls in an increasingly unpredictable
general election, the European Central Bank is due to meet and
later the same day and former FBI director James Comey will
testify before Congress.
"We have a big week or so ahead of us with the UK heading to
the polls and the ECB announcing its latest monetary policy
decision on Thursday and the Federal Reserve doing the same next
Wednesday," said Craig Erlam, a market analyst for OANDA
securities. "Once these events pass, we may have a little more
clarity and therefore see a little less caution in the markets."
The diplomatic spat in the Middle East left oil prices
hovering just below $50 a barrel and this in turn hit
European stocks, which tumbled across the board; the broad Euro
STOXX 600 was down 0.65 percent while German stocks
were down nearly 1 percent.
World stocks edged further away from record highs hit last
week, and the MSCI world equity index, which
tracks shares in 46 countries, fell 0.2 percent.
Investors instead bought gold, US Treasuries and German
government bonds - some of the safest assets in the world -
thrusting gold prices to six-week highs and German 10-year
borrowing costs to six-week lows.
U.S. Treasury yields dropped to a seven-month low of 2.129
percent at one stage. It is a move that has come
despite the Federal Reserve widely expected to raise U.S.
interest rates next week, but also follows a run of
weaker-than-expected U.S. data.
Erlam of OANDA said another area for concern is how steady
sterling has been - about flat to both the dollar and the euro -
potentially a sign of complacency before the election.,
The lead of British Prime Minister Theresa May over the
opposition Labour Party ahead of Thursday's general election has
narrowed to just 1 percentage point, according to a poll
conducted before the attacks in London on Saturday.
Other polls in recent days have found bigger leads for the
Conservatives of up to 11 and 12 points.
The dollar, meanwhile, touched a seven-month low ahead of
Reports suggest the former FBI chief plans to talk about
conversations in which U.S. President Trump allegedly pressured
him to drop his investigation into former national security
adviser Mike Flynn, who was fired for failing to disclose
conversations with Russian officials.
The dollar index, which tracks the currency against a
basket of trade-weighted peers, fell to its lowest level since
the November U.S. election.
Data on Monday showing U.S. services sector activity slowing
in May as new orders tumbled also hit the greenback.
For Reuters Live Markets blog on European and UK stock
markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
(Additional reporting by Nichola Saminather; Editing by Mark