July 2, 2018 / 6:00 PM / 15 days ago

GLOBAL MARKETS-Trade worries extend equities' slide into new quarter

(Updates prices, adds graphics links and detail on U.S. Chamber of Commerce opposing trade tariff policies)

By David Randall

NEW YORK, July 2 (Reuters) - The worst start to a year for world shares since 2010 continued into the third quarter on Monday, with another slump in Chinese shares and weakening global factory surveys leading global equity markets lower.

Shanghai’s bear market lurch continued overnight, with losses of up to 3 percent as firms await U.S. tariffs on $34 billion worth of Chinese goods this week, and new business surveys showed some worrying signs of deterioration.

The STOXX 600 index of European shares fell 0.8 percent and the euro slid 0.5 percent to $1.1630 as differences over immigration threatened Angela Merkel's German coalition government.

On Wall Street, the Dow Jones Industrial Average dropped 151 points, or 0.62 percent, to 24,120.25 in mid-afternoon trading, while the S&P 500 fell 13.59 points, or 0.5 percent, to 2,704.78. The tech-heavy Nasdaq fell 22.76 points, or 0.3 percent, after trading in positive territory earlier in the session.

The trade strains were compounded by an EU threat to hit the United States with retaliatory tariffs, lingering concerns over President Donald Trump's dislike for the World Trade Organization, and by data showing the weakest euro zone manufacturing growth in 18 months.

"There's not a lot of good news for markets to start the week," said Scott Brown, chief economist at Raymond James.

German 10-year bond yields dipped to five-week lows. The U.S. yield curve held near its flattest level in over a decade as investors preferred longer-dated U.S. government debt on worries about a global trade war.

Concerns over trade tariffs helped sink Japan's Nikkei 2.2 percent to an 11-week low, with a survey of manufacturers showing sentiment deteriorating in the face of trade war threats.

A report from Oxford Economics warned that tariff threats, if realized, would hit over 4 percent of world imports – a more than tenfold rise versus the 0.3 percent of imports hit by the new tariffs imposed so far.

"The threat to world growth is significant," it said. "In a scenario of escalating tariffs, our modeling suggests world GDP could be cut by up to 0.4 percentage points in 2019."

The U.S. Chamber of Commerce, the nation's largest business lobbying group and customarily a close ally of President Donald Trump's Republican Party, is launching a campaign on Monday to oppose Trump's trade tariff policies, the organization told Reuters.

In currency markets, the euro was knocked back on reports German Interior Minister Horst Seehofer had rejected a migration deal Merkel negotiated at an EU summit on Friday.

The Mexican peso see-sawed after leftist Andres Manuel Lopez Obrador won a decisive victory for president.

Dealers said the clear win might settle one source of political uncertainty, but Obrador was also expected to sharpen Mexican divisions with Trump.

Oil prices fell, reversing course from last week, as supplies from Saudi Arabia and Russia rose while economic growth stumbled in Asia.

Reporting by David Randall Editing by Nick Zieminski

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