* European stocks stumble back into the red
* French consumer spending data, Italian GDP weighs
* Dollar at 2 1/2-month high, Wall Street futures point higher
* Yuan at 10-year low, metals sink on trade war worries
* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh
By Marc Jones
LONDON, Oct 30 (Reuters) - European shares laboured in the red and China's yuan hit a 10-year low on Tuesday as the prospect of an escalation in the U.S.-Sino trade war compounded the recent gloom in global markets.
Traders reacted by sending the dollar a 2-1/2 month high and lifting futures prices on Wall Street's badly-bruised main markets, which have lost between 7 and 10 percent during this month's turbulence.
Asia had also made modest gains thanks to hints of economic stimulus from Beijing, but European bourses could not maintain the momentum as some disappointing company results and data from France and Italy triggered more caution.
The euro wallowed near a 10-week low of 1.1352 too as the dollar climbed to its 2 1/2-month high against a basket of the world's top six currencies.
It was the 10-year low for China's yuan in Asia that grabbed most attention, though, as it weakened to 6.9696 per dollar, stirring speculation over whether Beijing will tolerate a slide beyond 7 per dollar.
That had came on top of reports that Washington will impose tariffs on all Chinese imports by the end of the year without progress at next month’s meeting of Presidents Donald Trump and Xi Jinping, though Trump then said in an interview that a "great deal" was still possible with China.
"We don't see the trade war being resolved any time soon," said Rabobank's senior macro strategist Teeuwe Mevissen. "And it comes at a time when we see all the sentiment indicators in the euro zone but also in the U.S., too, cooling down."
There was more negative news out of Italy, the other major concern for Europe at the moment, as its coalition government faces off with the European Commission over spending.
Data showed the Italian economy had ground to a halt in the third quarter as both domestic demand and trade flows failed to spur any growth.
The flat reading was the weakest since the fourth quarter of 2014 and renewed the pressure on Italy's government debt in the bond markets.
Italy's 10-year government bond yield was up 2.5 basis points at 3.36 percent, having been as low as 3.32 percent earlier in the session. The closely watched spread over German government debt was back up to 300 bps.
Traders were also still digesting the news on Monday that Germany's Chancellor Angela Merkel will step down as leader of the Christian Democrats (CDU), heralding the end of a 13-year era in which she has dominated European politics.
Friedrich Merz, a former parliamentary leader of Merkel's conservative alliance, became the first candidate to officially throw their hat into the ring to succeed her on Tuesday.
Asia's choppy rise had come as China made a fresh attempt to stabilise its stock markets.
Beijing's securities regulator said it would encourage share buybacks and mergers and acquisitions by listed firms and would enhance market liquidity.
Mainland China's benchmark Shanghai Composite and the blue-chip CSI 300 gained to 1.0 percent and 1.1 percent, respectively, having initially fallen after Trump's administration had hit state-backed Chinese chipmaker Fujian Jinhua with U.S. restrictions on Monday.
Japan's Nikkei average also erased early losses and rose 1.5 percent as traders went shopping for bargains among beaten-down stocks.
MSCI's broadest index of Asia-Pacific shares has lost 12 percent this month and is on track for its biggest October decline since 2008, during the global financial crisis.
"At this point, nobody can say the equity market is bottoming out. Global investor sentiment remains shaky," said Yasuo Sakuma, chief investment officer at Libra Investments in Tokyo.
The speed with which a brief rally in U.S. stocks faded on Monday underscored that jittery mood.
Wall Street was pointing to 0.4-0.5 percent gains later, but the S&P 500 will be starting near a six-month low, having dropped almost 10 percent from last month’s record highs.
The chill around China and global trade means emerging- market stocks are at an 18-month low. MSCI's index is down for a sixth day in a row and Monday's post-election rally in Brazil was already in the rear-view mirror.
The CBOE Global Markets volatility index, known as Wall Street's "fear gauge", was down a touch, but it had jumped as high as 27.86 points, its second highest level since a worldwide volatility shock in early February.
"The probability of global stocks turning to a bear market is increasing," said Masanari Takada, cross-assets strategist at Nomura Securities.
In the main commodity markets, oil prices were down after easing overnight as Russia signalled that output will remain high and as concern over the global economy led to worries about demand for crude.
West Texas Intermediate crude futures dropped 1.4 percent to $66.13 per barrel. Brent crude futures fell 1.8 percent to just under $76.
Zinc and copper prices also buckled, along with other base metals, after U.S. President Trump's warning of new tariffs on Chinese goods.
Trump has said during an interview with Fox News that he thinks there will be "a great deal" with China on trade, but said he had billions of dollars worth of new tariffs ready to go if a deal is not possible.
Additional reporting by Tomo Uetake in Tokyo, Editing by Angus MacSwan