* S&P 500 slightly higher in early afternoon trading
* Trump tweets on lack of progress in Mexico talks
* Mexican peso hit by Fitch downgrade (Updates with European stocks close)
By Caroline Valetkevitch
NEW YORK, June 6 (Reuters) - The U.S. Treasury yield curve flattened on Thursday as the European Central Bank committed to leaving interest rates steady into the first half of 2020, while major world stock indexes mostly edged higher.
The ECB's move was less aggressive than what some traders had expected and led to selling of shorter-dated German government debt, which in turn spilled over to shorter U.S. Treasury maturities, traders and analysts said.
Much of the Treasury yield curve flattened, coming off its steepest level in seven months the day before. The gap between two-year and 10-year yields narrowed by 2.6 basis points to 25.10 basis points.
German 10-year yields tumbled to record low of -0.240% before retracing to -0.232%. Benchmark 10-year Treasury notes last rose 6/32 in price to yield 2.1019%, from 2.123% late on Wednesday.
"In Europe, the selling came with some pricing in of an ECB rate cut," said Subadra Rajappa, head of U.S. rates strategy at SG Corporate & Investment Banking in New York.
U.S. stocks were higher in early afternoon trading, with continued hopes of an interest rate cut from the Federal Reserve helping to support the market.
Limiting the day's gains were escalating trade tensions. U.S. President Donald Trump said he would decide on more China tariffs "probably right after the G20," on June 28 and 29. That followed his overnight threat to put tariffs on "at least" another $300 billion worth of Chinese goods.
The latest flare-up in tensions follows mixed economic data that rekindled worries about the health of the world's top economies but also spurred expectations that central banks could ride to the rescue.
The Dow Jones Industrial Average rose 73.77 points, or 0.29%, to 25,613.34, the S&P 500 gained 6.18 points, or 0.22%, to 2,832.33 and the Nasdaq Composite dropped 3.66 points, or 0.05%, to 7,571.81.
The pan-European STOXX 600 index lost 0.02% and MSCI's gauge of stocks across the globe gained 0.12%.
Mexico's peso suffered a double whammy of trade woes with the United States and the downgrade of the country's credit rating.
The Mexican peso fell 0.81% versus the U.S. dollar to 19.75.
The dollar index fell 0.46%, with the euro up 0.66% to $1.1293.
Oil futures were largely steady, after falling to near five-month lows in the previous session.
U.S. crude fell 0.23% to $51.56 per barrel.
Additional reporting by Richard Leong in New York; Medha Singh and Amy Caren Daniel in Bengaluru and Karin Strohecker in London; Editing by Sam Holmes, Toby Chopra and Dan Grebler