* Wall Street drops 2 pct, spooked by growth and trade worries
* Confusion over timing of trade truce, China commitments
* U.S. yield curve inversion raises recession concerns
* Dollar weakens (Updates with close of oil market, afternoon trading)
By Laila Kearney
New York, Dec 4 (Reuters) - Global stocks sank and the dollar fell on Tuesday as a flattening Treasury yield curve sparked recession warnings, while optimism that the U.S. and China would quickly resolve their trade dispute dwindled.
Benchmark Treasury 10-year yield fell to its lowest point since mid-September. The spread between the 10-year yield over its two-year counterpart also shrank to the smallest since the start of the financial crisis in January 2008, signalling to some investors an approaching U.S. economic slowdown.
"Today is the perfect storm," said RJ Grant, head of trading at Keefe, Bruyette & Woods in New York. "You've nothing really tangible coming out of the G20 summit. You have worries about growth."
The Dow Jones Industrial Average fell 701.59 points, or 2.72 percent, to 25,124.84, the S&P 500 lost 76.6 points, or 2.75 percent, to 2,713.77 and the Nasdaq Composite dropped 239.86 points, or 3.22 percent, to 7,201.65.
The pan-European STOXX 600 index lost 0.76 percent and MSCI's gauge of stocks across the globe shed 1.92 percent.
On Monday, stock markets around the world got some relief after Washington and Beijing agreed to temporarily end their trade war during talks at the G20 summit in Argentina. Upon closer scrutiny, investors said a deal between the world's two biggest economies was far from a sure bet.
"As soon as investors digested the information from the discussions they focused on the uncertainties and lack of details," said Ryan Nauman, market strategist, Informa Financial Intelligence, Zephyr Cove, Nevada.
There was added confusion over when the 90-day truce period, during which the U.S. and China would hold off on imposing more tariffs, would start.
Additionally, none of the commitments that U.S. officials said had been given by China - including reducing its 40 percent tariffs on autos - were agreed to in writing and specifics had yet to be hammered out.
Meanwhile, the flattening U.S. yield curve weighed on investors' minds.
"The focus is now shifting to the inverted U.S. bond yield curve, which has negative connotations, while implying the U.S. economy is heading towards what was, only a few weeks ago, an improbable economic slowdown," said Stephen Innes, head of trading for APAC at Oanda.
The U.S. dollar sagged as Treasury yields fell, adding to concerns the Federal Reserve could pause in its rate-hike cycle.
The greenback, which started the week on a weak footing as the apparent thaw in trade tensions between the U.S. and China cooled demand for the safe-haven currency, extended its fall as investors worried about the inversion of the short end of the U.S. yield curve in bond markets.
The dollar index fell 0.07 percent, with the euro down 0.1 percent to $1.1341.
Sterling briefly drooped to a 17-month low on the day, before recovering ground to trade little-changed, in a volatile session dominated by Brexit-related headlines.
Oil prices pared some gains as fears flared that demand would stall due to a trade war between the U.S. and China, and that Russia remained a stumbling block to a deal to cut global crude supply.
Brent crude oil settled at $62.08 per barrel, or jumped up 0.63 percent. U.S. light crude was last up 30 cents at $53.25.
Additional reporting by Karin Strohecker, Shreyashi Sanyal, Jessica Resnick-Ault, Andrew Galbraith and Chuck Mikolajczak; Editing by Bernadette Baum and Susan Thomas