* U.S. 3- /10-year curve inverts, German yields turn negative
* Global stocks tumble, oil falls
* U.S., European data miss expectations
* Graphic showing inversion tmsnrt.rs/2UNVc1P (Updates to mid-afternoon, adds commentary)
By Sinéad Carew
NEW YORK, March 22 (Reuters) - Stocks around the world fell and U.S. Treasuries yields sent out warning signs of a possible recession on Friday after weaker-than-expected U.S. and European data intensified fears of a global economic slowdown.
After weak U.S. manufacturing and services data, U.S. Treasury 10-year note yields sank below three-month Treasury bill yields for he first time since 2007. This sent investors fleeing from riskier bets as a yield curve inversion is seen as a leading recession indicator.
German 10-year bond yields dived below zero for the first time since October 2016 after German data showed manufacturing contracted in March for a third straight month. Factory activity across the whole euro zone looked equally dismal.
Wall Street followed European shares lower and deepened its losses as the day wore on, even as strategists said a recession would take some time to materialize or could even be averted.
"A U.S. recession is not imminent. Globally there are more concerns," said Kristina Hooper, chief global market strategist at Invesco in New York. She added that "the Fed decision this week has created an environment for risk-taking. Risk assets should be resilient if the economic data remain solid. I don’t think this is a cause for panic."
The U.S. Federal Reserve on Wednesday adopted a more-dovish- than-expected stance, announcing no further interest rate hikes planned for this year and an end to its balance sheet roll-offs.
“There is a school of thought out there that when the 10-year yield falls to 2.40 percent, the Fed may start cutting interest rates. That would be a very activist Fed, which may stave off a recession,” Hooper said.
The Dow Jones Industrial Average fell 305.59 points, or 1.18 percent, to 25,656.92, the S&P 500 lost 37.91 points, or 1.33 percent, to 2,816.97 and the Nasdaq Composite dropped 147.57 points, or 1.88 percent, to 7,691.39.
The pan-European STOXX 600 index lost 1.22 percent and MSCI's gauge of stocks across the globe shed 1.20 percent.
Preliminary measures of U.S. manufacturing and services activity for March showed both sectors grew at a slower pace than in February, according to data from IHS Markit. Manufacturing activity grew at the slowest pace since June 2017, and both the manufacturing and services purchasing manager index readings were weaker than analysts had forecast.
Even before the U.S. data, the 10-year yield had broken below the psychologically significant 2.5 percent level and went on to hit its lowest level since December 2017.
Benchmark 10-year notes last rose 22/32 in price to yield 2.4603 percent, from 2.539 percent late on Thursday.
“This is a powerful move. We sat in a range for two-and-a-half months. There’s a lot of supply next week. It will be important to see how the market digests that at these yield levels," said Justin Lederer, interest rate strategist at Cantor Fitzgerald in New York.
"Are there willing buyers there, are there guys that really need to buy to get into the market, or are we a little overextended here in Treasuries?”
Adding to the uncertainty were worries over how much progress the United States and China will make in their next round of trade talks.
U.S. President Donald Trump said negotiations were progressing and a final deal "will probably happen," adding that his call for tariffs to remain on Chinese imported goods for some time did not mean the talks were in trouble.
The dollar index rose 0.2 percent, with the euro down 0.75 percent to $1.1288.
But the Japanese yen strengthened 0.62 percent versus the greenback at 110.14 per dollar, while Sterling was last trading at $1.3204, up 0.74 percent on the day.
After plunging toward $1.30 on Thursday, Sterling recovered a little after European Union leaders gave Prime Minister Theresa May a two-week reprieve, until April 12, to decide how to leave the European Union.
Oil fell as much as 2.5 percent as investors feared a lack of progress in U.S.-China trade talks and as the grim manufacturing data reignited fears of a slowdown in the global economy and oil demand.
U.S. crude fell 1.67 percent to $58.98 per barrel.
Additional reporting by Kate Duguid, Richard Leong and Saqib Iqbal Ahmed in New York, Karin Strohecker and Marc Jones in London, Hideyuki Sano & Tomo Uetake in Tokyo; Graphic by Sujata Rao; Editing by Toby Chopra and Dan Grebler