May 31, 2018 / 3:47 PM / 3 months ago

RPT-GLOBAL MARKETS-Trade conflict weighs on stock markets

(Repeats to 'Global Markets' slug; no other changes to text)

By Trevor Hunnicutt

NEW YORK, May 31 (Reuters) - Equity indexes on Wall Street and around the world fell on Thursday as trade concerns weighed on investors, taking the pep out of a recovery in many markets earlier in the day.

Washington is set to announce plans to slap tariffs on European Union steel and aluminum imports as early as Thursday morning, sources said, while the U.S. commerce secretary said any escalation of a trade dispute would depend on the bloc's reaction.

That helped deflate or, in some cases, erase earlier gains in global stock markets and a euro that was seeming to move past concerns about the Italian government.

The Dow Jones Industrial Average fell 220.08 points, or 0.89 percent, to 24,447.7, the S&P 500 lost 10.96 points, or 0.40 percent, to 2,713.05 and the Nasdaq Composite dropped 0.45 points, or 0.01 percent, to 7,462.00.

The pan-European FTSEurofirst 300 index lost 0.49 percent. Germany's DAX sank 1.27 percent on reports that President Donald Trump aimed to push German carmakers out of the United States.

MSCI's gauge of stocks across the globe shed 0.16 percent after a stronger showing earlier.

"Flows should benefit Treasuries versus equities ... especially with all the tariff issue headlines hitting the tape," Andrew Brenner, partner at National Alliance Capital Markets, said in a note.

China lashed out at the renewed threats from the White House on trade and warned it was ready to fight back, days ahead of a planned visit by U.S. Commerce Secretary Wilbur Ross.

Markets have been wrestling this week with the implications of an Italian governing crisis, which sent its government bonds spiraling down earlier this week and hit the euro and other risk assets. But Italian leaders made new efforts to form a government.

Italy's 2-year government bond yield, which has been the focus of the selloff, was back down to 1.3 percent after hitting near-five-year highs of 2.7 percent on Tuesday. The euro climbed 0.15 percent to $1.1678 after its biggest jump since early January on Wednesday.

After a high-volume move into safe-haven 10-year Treasury notes earlier this week, those bonds last rose an additional 3/32 in price to yield 2.8332 percent, from 2.844 percent late on Wednesday.

This was despite data showing U.S. consumer spending rose more than expected in April while inflation continued to rise steadily.

The dollar index fell 0.19 percent, and emerging market stocks saw gains, rising 0.79 percent.

The euro's rise came as two polls in Italy showed 60-72 percent of respondents wanted the country to remain part of the euro. Markets have been concerned about the prospect that populist parties there could push to leave the currency.

In commodity markets, Brent crude prices reversed earlier losses to hit their biggest premium to U.S. futures in over three years on Thursday, as the prospect of more inventory increases weighed heavily on West Texas Intermediate prices. U.S. crude stockpiles rose by 1 million barrels in the week to May 25, according to the American Petroleum Institute (API), while analysts had expected a drop.

U.S. crude fell 1.52 percent to $67.17 per barrel and Brent was last at $78.21, up 0.63 percent.

Reporting by Trevor Hunnicutt; Additional reporting by Marc Jones in London; Editing by Bernadette Baum

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