* Italian stocks slump 2.4% on snap election worries
* U.S. may delay permitting companies to trade with Huawei
* Yuan stabilizes, Chinese stocks fall after soft data
* Gold at six-year high, best week for three years
* Japanese yen near eight-month high
* Brexit, UK recession worries punish the pound
By Marc Jones
LONDON, Aug 9 (Reuters) - Trade war worries and the prospect of early elections in Italy and Britain hit European markets hard on Friday, while the search for safety left gold on course for its best week in three years, Japan's yen near an eight-month high and bonds surging.
A turbulent week dominated by a symbolic drop in China's currency was not finished yet. A report that Washington was delaying a decision about allowing some trade between U.S. companies and Huawei again spooked Asia .
Europe then plunged lower due to a 2.4% slump in Italian stocks after Matteo Salvini, the leader of one of the country's ruling parties, the League, pulled his support for the governing coalition on Thursday.
Snap elections have been likely for months, but markets were jarred by the speed at which Salvini – who had previously insisted the government would last its full five years – pushed for a new poll.
"Those who waste time hurt the country," the League said in a statement as it presented a no-confidence motion to the Senate in Rome.
Investors dumped Italian government debt, pushing yields -- which move inversely to prices -- on Rome's 10-year bonds up 26 basis points to 1.8%, the biggest daily increase in over a year.
London's FTSE and the pound were under heavy strain, too, after Britain reported its economy shrank in the second quarter, the first contraction in seven years.
That followed reports on Thursday that the new British Prime Minister, Boris Johnson, was planning for an election after an Oct. 31 Brexit. It all shoved sterling to a two-year low against the euro and a 2-1/2 low versus the dollar.
"It has been a very volatile week," said Elwin de Groot, Rabobank's head of macro strategy.
"Until recently, the markets' view was that this trade war will be resolved, but clearly now the thinking is that maybe this is not the case and it could be accelerating from here," and Italy and Brexit worries are now adding to that, he said.
U.S. stock futures did not look much brighter either. They were down as much as 0.6% in Europe as the Huawei jitters knocked some of the tech names, although the S&P 500 had had its best session in two months on Thursday.
MSCI's broadest index of world shares, which tracks 47 countries, was back in the red too and headed for its second straight week of declines after one of its worst days in years on Monday.
Asia ex-Japan had ended down 2.3% for the week after data showed China's first decline in producer prices in three years, compounding the Huawei disappointment .
According to Bank of Americal Merrill Lynch's number crunchers, $3.5 trillion has been wiped off the value of global equity markets over the past week, while Monday's rout triggered the 12th biggest withdrawal from stocks funds ever to the tune of $12.4 billion.
The offshore yuan managed to hold steady, even after China's central bank set its daily midpoint fixing at 7.0136 per dollar, the weakest since April 2, 2008.
The yen meanwhile rose as much as 0.4% against the dollar to 105.70 yen, virtually an eight-month high.
"The news about Huawei triggered the rise in the yen," said Junichi Ishikawa, senior foreign exchange strategist at IG Securities. "This is a reminder that the U.S.-China trade dispute remains a risk, and this risk is not receding."
Other safe havens also gained. Gold rose back above $1,500 on Friday, its highest in more than six years, en route to its best week since April 2016.
Oil prices made it two days of rises, on expectations of more production cuts by OPEC.
Brent crude clambered back above $58 per barrel and U.S. West Texas Intermediate made it past $53. Worries about the global economy hoever meant Brent was down 6% for the week and WTI more than 5%.
"The trade spat is driving the market crazy," said Jigar Trivedi, commodities analyst at Mumbai-based Anand Rathi Shares & Stock Brokers. "$1,500 (for gold) is now the new normal unless trade relations take a turn in a right direction."
BAML had noted that a mass $2.3 billion pile into gold funds over the last week had been the fourth largest inflow ever.
Additional reporting by Arpan Varghese in Bengaluru, editing by Larry King