May 9, 2019 / 3:35 PM / 13 days ago

GLOBAL MARKETS-Shares, yields sink on U.S.-China trade war escalation fears

* U.S., European shares follow Asia lower on trade angst

* Beijing vows retaliation after USTR signals tariff hike

* Trump says China "broke the deal"; talks resume Thursday

* Asia, EM stocks at 2-month lows, SKorea sinks 3 percent (Updates after U.S. market open, adds commentary, changes byline, previous dateline LONDON)

By Sinéad Carew

NEW YORK, May 9 (Reuters) - Equity indexes around the world tumbled for a fourth day in a row on Thursday as U.S.-China trade tensions put investors on edge the day before U.S. President Donald Trump was due to raise tariffs on Chinese goods.

Oil prices fell as worries about the trade war outweighed a surprise drop in U.S. inventories. U.S. Treasury yields neared a six-week low while the dollar lost ground against Japan's yen as investors sought a safe haven currency.

China asked the United States to meet it halfway, while its chief negotiator was in Washington for talks in the hope of staving off a U.S. tariff hike on $200 billion of Chinese goods to 25% from 10% at 12.01 AM EDT on Friday.

Wall Street's main indexes followed European equities lower after stocks in China tumbled.

"Investors are worried about the clash of the titans," said Joseph Quinlan head of market strategy for Merrill and Bank of America Private Bank in New York.

"It's the knock-on effect on the rest of the world in terms of potential disruptions to global supply chains, the decline in investor confidence, business confidence and consumer confidence. And we're getting closer to striking midnight."

Beijing has said it would retaliate against the tariff hike while Trump insisted that China "broke the deal."

"Tomorrow we're talking about how this escalates ... How does China respond," said Quinlan. "It's going to hurt. But what's more important is the uncertainty it creates."

The Dow Jones Industrial Average fell 374.81 points, or 1.44%, to 25,592.52, the S&P 500 lost 35.31 points, or 1.23%, to 2,844.11 and the Nasdaq Composite dropped 117.96 points, or 1.49%, to 7,825.36.

The pan-European STOXX 600 index lost 1.62% and MSCI's gauge of stocks across the globe shed 1.35%.

In U.S. Treasuries, 10-year yields hit 2.424, the lowest point since April 1.

Benchmark 10-year notes last rose 12/32 in price to yield 2.4405%, from 2.483% late on Wednesday.

"In the event of a complete breakdown in (trade) talks and higher tariffs, we would expect this to see U.S. stocks trade 10 to 15 percent below their highs and a fall of around 15 to 20 percent in the Chinese market," said Mark Haefele, global chief investment officer at Global Wealth Management at UBS.

In currencies, the yen surged to a three-month high against the dollar and the Swiss franc was at a one-month high as investors eyeing escalating trade conflict, sought out the safe currencies. The greenback declined 0.5 against the yen.

The dollar index fell 0.3%, with the euro up 0.36% to $1.1231.

Spot gold added 0.3% to $1,284.30 an ounce.

U.S. crude fell 1.26% to $61.34 per barrel.

Emerging market stocks lost 2.47%. MSCI's broadest index of Asia-Pacific shares outside Japan closed 2.03% lower, while Japan's Nikkei lost 0.93%.

In China the Shanghai Composite closed down 1.5% after hitting its lowest since late February.

Additional reporting by Kate Duguid, Richard Leong in New York, Marc Jones in London, Tomo Uetake in Sydney, Noah Sin in Hong Kong; Editing by Dale Hudson and John Stonestreet

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