September 6, 2018 / 7:20 PM / 2 months ago

GLOBAL MARKETS-Trade war uncertainty drags on markets, world stock index down for 5th day

* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh (Updates to late afternoon)

By Sinéad Carew

NEW YORK, Sept 6 (Reuters) - MSCI's global stock index fell for a fifth straight day on Thursday and emerging market stocks were in their sixth day of declines as investors braced for an escalation in the trade war between the United States and China.

The dollar edged down though it still received support from concerns about U.S. President Donald Trump imposing further tariffs on Chinese imports.

MSCI's emerging market stock index lost 0.32 percent and was near a 13-month low hit last month. The index would confirm a bear market if it closes more than 20 percent below its Jan. 26 high.

"You've got momentum on the downside for international (stocks) and it's picking up some steam this week and last week. You have people reallocating and deciding that the move to go international at the start of the year is now looking terrible," said Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago. "Relative to the S&P 500, international and emerging market stocks have been performing very poorly."

U.S. Treasury yields fell on safety buying as stocks dropped and as investors saw recent weakness in bonds driven by heavy corporate issuance as an opportunity to add positions at higher yields.

“A portion of (the Treasury rally) is supported by the general 'risk off' move across all risk assets,” said Mike Lorizio, head of Treasuries trading at Manulife Asset Management in Boston.

A key worry for investors was the end of a public consultation period over trade on Thursday night, after which Trump could impose tariffs on an additional $200 billion of Chinese goods.

China's commerce ministry warned that the country would retaliate against any new tariff measures. Trump had said on Wednesday that the United States was not yet ready to come to an agreement with China.

Investors also awaited news from U.S.-Canada talks about revamping the North American Free Trade Agreement. Canada's Foreign Minister Chrystia Freeland told reporters as she headed into a new round of talks that the discussion had been "positive and constructive," repeating a phrase she used on Wednesday, without providing new details.

The Dow Jones Industrial Average rose 36.92 points, or 0.14 percent, to 26,011.91, the S&P 500 lost 10.82 points, or 0.37 percent, to 2,877.78 and the Nasdaq Composite dropped 79.93 points, or 1 percent, to 7,915.25.

The MSCI All-Country World Index, which tracks shares in 47 countries, was down 0.5 percent while the pan-European STOXX 600 index fell 0.6 percent.

Investors were worried that problems in Argentina, Turkey and South Africa were no longer isolated cases, analysts said. Strategists at Societe Generale wrote "there's definitely more to the emerging market selloff than a few unrelated spots of weakness."

Earlier in Asia, MSCI's broadest index of Asia-Pacific shares outside Japan dropped 0.7 percent.

The dollar, considered a safe haven in times of turmoil has benefited from the trade conflicts.

The dollar index, tracking it against a basket of major currencies, fell 0.14 percent, with the euro down 0.05 percent to $1.1623.

Sterling added to Wednesday's gains as some investors positioned for a favorable Brexit outcome, though it was well below the previous session's high as progress was uncertain. It was last up 0.3 percent against the dollar.

Emerging markets have been hit by financial crises in Argentina and Turkey. In Indonesia, the central bank has intervened in recent weeks to stem the rupiah's slide.

MSCI's index of emerging market currencies, which had earlier paused near 16-month lows, was unchanged after two straight days of heavy declines.

Crude oil futures fell after U.S. data showed gasoline inventories rose unexpectedly last week, overshadowing a bullish drawdown in crude stocks.

U.S. crude fell 1.24 percent to $67.87 per barrel and Brent was last at $76.63, down 0.83 percent.

U.S. gold futures gained 0.30 percent to $1,204.90 an ounce.

Additional reporting by Saqib Iqbal Ahmed, Jessica Resnick-Ault and Karen Brettell in New York and Ritvik Carvalho, Julien Ponthus, Sujata Rao and Kit Rees in London; Editing by Bernadette Baum and James Dalgleish

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