* Investors nervous ahead of U.S.-China trade talks
* China shares, yuan up gain after week-long holiday
* Turkish lira struggles on tension over Syria
* Oil gains on Iraq, Ecuador unrest
* Asian stock markets: tmsnrt.rs/2zpUAr4
By Karin Strohecker
LONDON, Oct 8 (Reuters) - A two-day global stocks rally ran out of steam on Tuesday while major bond yields came under pressure and the dollar was on the back foot as concerns over China-U.S. trade talks and disappointing European earnings doused investors' optimism.
The pan-European STOXX 600 index slipped 0.4%. Germany's trade-sensitive DAX declined 0.5%, with data showing an unexpected rise in industrial output, failing to lift the index.
The losses came in the wake of mixed messages on trade tensions with Washington blacklisting eight Chinese tech companies and President Donald Trump suggested a deal to end the trade dispute may not yet be quite in the offing.
On Monday, U.S. and Chinese deputy trade negotiators launched two days of talks aimed at paving the way for the first minister-level negotiations in months on Thursday and Friday.
"We have a lot of uncertainty still around – last night, Trump said there would only be a deal if he really got his way, the Chinese want to exclude all the disputed topics ... some are cautiously optimistic, other are rather sceptical," said Antje Praefcke at Commerzbank in Frankfurt.
"We expect that we could see a mini deal with neither Beijing nor Washington interested in letting this escalate. But for a real deal, the positions are too far apart," she added.
Mixed corporate news added to the woes, with LSE shares tumbling 6% after Hong Kong pulled out of its takeover bid for the exchange, while Germany biotech Qiagen has plunged 16.5% to three-year lows after a sales warning.
MSCI's All-Country World Index, which tracks shares across 47 countries, was flat on the day.
Europe's losses followed healthy gains in Asia, where Japan's Nikkei climbed 1.0% while MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.55%, led by gains in tech shares in South Korea and Taiwan.
Hong Kong extended gains after the territory's leader said she had no plans to use the emergency regulation ordinance to introduce other laws.
China mainland stocks returned from a week-long holiday with a 0.6% rise. The National Holiday celebrations also offered a rare respite to China's retail sector, with spending on goods and dining returning to growth this year.
Yet a private survey showed China's services sector grew at its slowest pace in seven months in September, offering little momentum to an economy that has been expanding at its weakest pace in almost three decades.
With the focus now turning to trade talks, Trump also said he hoped Beijing found a humane and peaceful resolution to political protests in Hong Kong, and warned the situation had the potential to hurt the discussions.
Negotiations are getting under way ahead of a scheduled increase in U.S. tariffs on $250 billion worth of Chinese goods, to 30% from 25% on Oct. 15. Trump has said the tariff increase will take effect if no progress is made in the negotiations.
"Since tariffs have been hurting trade, people are hoping Trump may postpone some of the upcoming tariffs," said Yukino Yamada, senior strategist at Daiwa Securities. "Nevertheless, you can't ignore that fact that, up until now, the market has underestimated Trump's determination on tariffs."
U.S. futures pointed to a softer open on Wall Street . On Monday, the S&P 500 had lost 0.45%, unable to cling to gains made after positive tweets and news headlines about the trade talks.
The uncertainty also added to pressure in fixed income markets with German bund yields nudging lower while U.S. Treasuries eased ahead of some $78 billion in note and bond supply slated for auction this week.
Meanwhile in currencies, the dollar lost momentum, dipping 0.1% against a basket of its rivals after posting its biggest single-day rise in a week in the previous session. The greenback traded at 107.14 yen, up 0.1%.
Markets will be keenly watching comments from U.S. Federal Reserve Chairman Jerome Powell later in the day after some weak U.S. data last week raised concerns the U.S. economy may be heading towards a protracted slowdown.
The euro got a boost from the healthy German industrial output data, with the single currency rising 0.2% to $1.0989, though not far off the more than a two-year low hit last week.
Sterling traded at $1.2290, capped by concerns that sizeable differences between Britain and the European Union remained for striking a Brexit withdrawal deal.
With just 24 days to go before Britain is due to leave the EU, both sides are positioning themselves to avoid blame for a delay or a disorderly no-deal Brexit.
In emerging currency markets, the focus was on Turkey's lira which strengthened 0.3% after hitting a five-week low in early trade and a more than 2% tumble on Monday over concerns about Ankara's planned incursion in northern Syria.
Trump threatened to destroy Turkey's economy if Ankara took a planned military strike in Syria too far, even though the U.S. leader himself has opened the door for a Turkish incursion by his decision to withdraw U.S. troop from the area.
China's yuan firmed in onshore and offshore trade on its return from the National Holiday.
Oil prices rose 0.8% as unrest in oil-producing countries Iraq and Ecuador raised concerns of supply disruptions. Brent crude futures stood at $58.83 a barrel while U.S. West Texas Intermediate (WTI) traded at $53.16 per barrel. (Additional reporting by Sano Hideyuki in Tokyo, Tom Westbrook in Singapore; Editing by Jacqueline Wong and Alison Williams)