April 10, 2019 / 8:54 AM / 3 months ago

GLOBAL MARKETS-Stocks rally stalls as U.S.-EU trade war threat simmers

* Asian shares dip as Trump threatens EU tariffs

* But Europe recovers some losses before ECB meeting

* ECB expected to signal stimulus in coming months

* Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh

By Abhinav Ramnarayan

LONDON, April 10 (Reuters) - World stocks slipped below the six-month high they reached earlier this week as U.S. President Donald Trump threatened more tariffs against the European Union, though the prospect of European Central Bank largesse kept them from falling too far.

Trump threatened on Tuesday to impose tariffs on $11 billion worth of EU products in a long-running dispute over aircraft subsidies, opening a new front in his global trade war.

U.S. and Asian stocks fell, and the MSCI world equity index , which tracks shares in 47 countries, dropped below the six-month low reached earlier in the week.

"Risk assets have been threatening to take their foot off the pedal in recent sessions and yesterday we finally saw that with a delayed reaction to the U.S.-EU tariff headlines," said Deutsche Bank's chief market strategist Jim Reid.

But after falling the day before, European stocks rose slightly on hopes the ECB will propose some supportive policy when it meets later on Wednesday.

A pan-European index of shares was up 0.3 percent, partly reversing Tuesday's losses. Germany's DAX rose 0.4 percent, after dropping nearly a full percent on Tuesday.

Earlier, MSCI's broadest index of Asia-Pacific shares outside Japan dropped 0.1 percent, a day after rising to its highest since Aug. 1.

The Shanghai Composite Index fell 0.4 percent and Japan's Nikkei lost 0.7 percent.

The ECB is "going to come out with some more details on the TLTRO," said Francois Savary, chief investment officer at Prime Partners, referring to cheap loans to banks called targeted long-term refinancing operations. "The global picture has been set, now we are waiting for the details about what they do and if they are going to speak maybe about the adjustment of the negative interest rate policy on reserves."

Central banks, including the ECB, have turned dovish this year on worries about slowing growth. On Tuesday, the International Monetary Fund cut its forecast for world economic growth and said a sharp downturn could require world leaders to coordinate stimulus measures.

Global debt yields held mostly steady, with the 10-year German Bund yield little changed around the zero percent mark.

In a possible sign of demand for bonds, Saudi Aramco is set to raise $12 billion with its first international bond issue after getting more than $100 billion in orders. It was a record-breaking vote of confidence by investors despite the murder of Saudi journalist Jamal Khashoggi in October.

Major currencies were little changed before a European Union summit and the ECB meeting.

EU leaders are likely to grant British Prime Minister Theresa May a second delay to Brexit, but they could demand a much longer extension as France pushed for conditions to limit Britain's participation in EU affairs.

The euro held at $1.1260, extending its slow recovery from a four-week low of $1.1183 touched on April 2. The British pound was little changed at $1.3066. The dollar was flat at 111.17 yen, having fallen 0.5 percent so far this week.

Oil prices remained near Tuesday's five-month highs as fighting in Libya raised supply disruption concerns.

U.S. crude futures stood at $64.32 per barrel, up 0.3 percent after rallying to a five-month high of $64.79 on Tuesday. Brent crude futures were at $70.81 per barrel and in reach of Tuesday's five-month peak of $71.34. (Reporting by Abhinav Ramnarayan, additional reporting by Karin Strohecker in London and Hideyuki Sano in Tokyo; editing by Larry King)

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