(New throughout, updates prices, market activity, comment; adds Trump on EU trade deal)
* European stocks drop 2.5%, biggest daily fall in 2019
* Interest rate futures price in Fed rate cut in Sept
* Oil prices rebound from biggest daily drop in years
By Rodrigo Campos
NEW YORK, Aug 2 (Reuters) - A measure of stocks across the globe was on track to post its largest weekly loss of the year on Friday while yields in U.S. and German debt were near multi-year lows, after China vowed to retaliate against a possible new round of U.S. tariffs.
Oil prices bounced back from losses that exceeded 7% the previous session and the yen scaled further against the dollar a day after its strongest daily gain in over two years.
The moves followed a sharp Wall Street selloff triggered by U.S. President Donald Trump's threat Thursday to impose a 10% tariff on $300 billion worth of Chinese imports.
China did not specify how it would retaliate, but analysts have said options include tariffs, a ban on export of rare earths used in everything from military equipment to consumer electronics, and penalties against U.S. companies in China.
The trade war between the world's largest economies has already dislocated global supply chains and slowed economic growth. The abrupt escalation capped a critical week for global markets after the U.S. Federal Reserve delivered a widely anticipated interest rate cut but played down expectations of many more ahead.
"The tariff threat was a splash of cold water. The market had become accustomed to the current state of U.S-China trade negotiations, but a hike in tariffs wakes you up to the fact that the trade war is still with us," said Michael Antonelli, market strategist at Robert W. Baird in Milwaukee.
The Dow Jones Industrial Average fell 188.95 points, or 0.71%, to 26,394.47, the S&P 500 lost 28.59 points, or 0.97%, to 2,924.97 and the Nasdaq Composite dropped 132.18 points, or 1.63%, to 7,978.94.
The pan-European STOXX 600 index lost 2.46% and MSCI's gauge of stocks across the globe shed 1.30%.
Emerging market stocks lost 2.12%. MSCI's broadest index of Asia-Pacific shares outside Japan closed 1.94% lower, while futures in Japan's Nikkei lost 1.09%.
U.S. data on Friday showed employment growth in July slowed as expected, which along with trade turmoil may encourage the Federal Reserve to cut interest rates again in September.
"On balance it is probably a slightly dollar-negative (employment) number because (it) increases the case for a Fed rate cut in September. We're already at the point where we're trading that," said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets in New York.
A further 25-basis-point cut by the Fed is priced in for the central bank's September meeting while the chance of another cut in October is roughly 1-in-2 according to Fed futures markets.
Safe-haven assets were bid across markets with German 10-year government bond yields dropping to an all-time low of -0.502% and the country's entire government bond yield curve turning negative for the first time ever.
Benchmark 10-year notes last rose 10/32 in price to yield 1.8571%, from 1.892% late on Thursday. They fell to 1.832% earlier, the lowest since November 2016.
"In the grand scheme of things, it will become clearer and clearer that the Federal Reserve has started an easing cycle and will have no choice but to cut rates further," said Akira Takei, fund manager at Asset Management One.
In currency markets the Japanese yen, which on Thursday gained the most in over two years against the dollar, further strengthened 0.74% to 106.58 per dollar.
The Swiss franc reached a two-year high of 1.0907 against the euro, which bounced back from a two-year low of $1.1027 earlier in the week. The common currency was recently up 0.23% to $1.1109.
The British pound held near a 30-month low versus the dollar as the governing Conservatives' majority in parliament was reduced to one seat, three months before the country is due to leave the European Union.
Sterling was last trading at $1.2159, up 0.23% on the day.
U.S. crude rose 3.02% to $55.58 per barrel and Brent was last at $61.78, up 2.12% on the day.
Reporting by Rodrigo Campos; additional reporting by Amy Caren Daniel in Bengaluru, Karin Strohecker in London and Kate Duguid, Richard Leong & Laila Kearney in New York Editing by Susan Thomas and David Gregorio