(Updates to close, adds reaction to Fed's Powell, U.S.-China visa restrictions)
* U.S. Treasury yield curve steepens after Powell speaks
* Safe havens yen, gold shine in flight to safety
* Worries over health of world economy hit oil
By Rodrigo Campos
NEW YORK, Oct 8 (Reuters) - Stocks fell on Tuesday as U.S.-China tensions rose further ahead of high-level trade talks, while the British pound sank on reports that Brexit negotiations were close to breaking down.
Gold and the yen rose, indicating an increased appetite for safe-haven assets.
Wall Street stocks closed at session lows after Washington imposed visa restrictions on Chinese government and Communist Party officials over abuses of Muslim minorities. The move came only hours after the Trump administration widened its trade blacklist to include some of China's top artificial intelligence startups.
High-level talks between the world's top two economies on trade are due to resume on Thursday. The negotiations, the stock market's most important catalyst for months, have weighed on investor sentiment.
"The headlines are painting a picture of a less optimistic tone to the trade talks this week," said John Zaller, chief investment officer of MAI Capital Management in Cleveland.
"Anything less than a tariff delay would be a pretty big disappointment for the markets."
An increase to 30% from 25% in U.S. tariffs on $250 billion worth of Chinese goods is scheduled for Oct. 15.
The Dow Jones Industrial Average fell 313.98 points, or 1.19%, to 26,164.04, the S&P 500 lost 45.73 points, or 1.56%, to 2,893.06 and the Nasdaq Composite dropped 132.52 points, or 1.67%, to 7,823.78.
The pan-European STOXX 600 index lost 1.10% and MSCI's gauge of stocks across the globe shed 1.14%.
Emerging market stocks ended 0.18% lower despite gains overnight in Asia. Japan's Nikkei futures lost 0.74%.
Investors of Chinese mainland stocks returned from a week-long holiday to boost the index by 0.3%, but a private survey showed growth in China's services sector at its slowest in seven months in September.
With the focus turning to trade talks, U.S. President Donald Trump said he hoped Beijing would find a humane and peaceful resolution to political protests in Hong Kong, adding that situation had the potential to hurt the trade discussions.
The U.S. Treasury yield curve steepened, driven by a falling two-year yield after Federal Reserve Chairman Jerome Powell flagged openness to further rate cuts and said the Fed would expand its balance sheet to ensure money markets function smoothly.
Benchmark 10-year Treasury notes last rose 6/32 in price to yield 1.534%, from 1.553% late on Monday.
Markets have been waiting for the Fed to put in place policies to avoid the sort of reserve shortages that occurred recently and could disrupt the Fed's policy goals if they were to become a regular feature of financial markets.
Despite expectations for lower rates, the U.S. dollar rose against a basket of six peers.
The dollar index rose 0.17%, with the euro down 0.15% to $1.0953.
Sterling tumbled after reports that Brexit talks between Britain and Brussels were close to breaking down.
The EU accused Britain of playing a "stupid blame game" after a Downing Street source said a deal was essentially impossible because German Chancellor Angela Merkel had made unacceptable demands.
Sterling last traded at $1.2212, down 0.63% on the day.
The safe-haven yen strengthened 0.21% versus the greenback at 107.08 per dollar.
The Turkish lira gained 0.06% versus the U.S. dollar at 5.83 after falling more than 2% on Monday.
Meanwhile in Washington, the new IMF Managing Director Kristalina Georgieva said trade tensions could mean a loss of around $700 billion to the world economy by 2020, or about 0.8%of global GDP.
Worries over the health of the world economy sent oil prices lower even as anti-government protests resumed overnight in Iraq, OPEC's second-largest producer.
U.S. crude fell 0.34% to $52.57 per barrel and Brent was last at $58.17, down 0.31% on the day.
"The market's focus remains on trade tensions and oil demand concerns, ignoring the elevated geopolitical tensions in the Middle East and lower OPEC production in September," said UBS oil analyst Giovanni Staunovo.
"Growing recession risks have capped the upside of oil prices."
The U.S. Energy Information Administration cut its 2020 world oil demand growth forecast by 100,000 barrels per day to 1.30 million bpd, or about 7%.
Spot gold added 0.8% to $1,505.47 an ounce. U.S. gold futures fell 0.02% to $1,497.20 an ounce.
Copper lost 0.67% to $5,683.50 a tonne.
Reporting by Rodrigo Campos; additional reporting by Karin Strohecker in London and Devika Kumar, Kate Duguid and Saqib Ahmed in New York; Editing by Dan Grebler, Bernadette Baum and Tom Brown