5 Min Read
* Gold, German bunds at recent highs as safe assets thrive
* U.S. stocks open lower, European shares hit
* Sterling stays steady as polls narrow before UK election
* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh (Changes dateline to New York; adds Wall Street open; updates throughout)
By Hilary Russ
NEW YORK, June 6 (Reuters) - U.S. Treasury yields and the dollar dropped to seven-month lows on Tuesday and world stocks slid as political uncertainty from the United States to the Middle East and weakness in commodity markets pushed investors away from risky assets.
The yen and gold also gained amid prevailing caution as an Arab rift opened up around Qatar, and ahead of testimony from the former head of the FBI, a British election and the European Central Bank's next move, which all happen on Thursday.
Wall Street was lower for a second day after both European and Asian stocks dropped during their sessions.
The Dow Jones Industrial Average fell 31.09 points, or 0.15 percent, to 21,152.95, the S&P 500 lost 5 points, or 0.21 percent, to 2,431.1 and the Nasdaq Composite dropped 6.70 points, or 0.11 percent, to 6,288.98.
"We've had a little bit of a cooling off in equities following the breaking of links with Qatar - a lot of people think it may force oil prices lower and remove some of the inflationary pressures," said RBC economist Cathal Kennedy.
"As those pressures ease, it pushes out the horizon for interest rate rises."
On what BayernLB analysts called "Super Thursday", British voters will also go to polls in an increasingly unpredictable general election, the European Central Bank is due to meet and later the same day and former FBI director James Comey will testify before Congress.
"We have a big week or so ahead of us with the UK heading to the polls and the ECB announcing its latest monetary policy decision on Thursday and the Federal Reserve doing the same next Wednesday," said Craig Erlam, a market analyst for OANDA securities. "Once these events pass, we may have a little more clarity and therefore see a little less caution in the markets."
The diplomatic spat in the Middle East left oil prices hovering just below $50 a barrel and this, in turn, hit European stocks, which tumbled across the board.
The pan-European FTSEurofirst 300 index lost 0.66 percent and MSCI's gauge of stocks across the globe shed 0.25 percent.
The broad Euro STOXX 600 was down 0.7 percent while German stocks were down 1.05 percent.
In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan closed 0.2 percent lower, while Japan's Nikkei lost 0.95 percent.
U.S. crude fell 0.38 percent to $47.22 per barrel and Brent was last at $49.19, down 0.57 percent on the day.
Investors instead bought gold, U.S. Treasuries and German government bonds - some of the safest assets in the world - thrusting gold prices to seven-week highs and German 10-year borrowing costs to six-week lows.
U.S. Treasury yields dropped to a seven-month low of 2.129 percent at one stage . It is a move that has come despite the Federal Reserve widely expected to raise U.S. interest rates next week, but also follows a run of weaker-than-expected U.S. data.
Erlam of OANDA said another area for concern is how steady sterling has been - about flat against both the dollar and the euro - potentially a sign of complacency before the election.
The lead of British Prime Minister Theresa May over the opposition Labour Party ahead of Thursday's general election has narrowed to just 1 percentage point, according to a poll conducted before the attacks in London on Saturday.
Other polls in recent days have found bigger leads for the Conservatives of up to 11 and 12 points.
The dollar, meanwhile, was fell to a more than six-week low against the yen and was at its weakest since the November U.S. election against a basket of other world currencies.
The dip came ahead of Comey's expected testimony on Thursday.
Reports suggest the former FBI chief plans to talk about conversations in which U.S. President Trump allegedly pressured him to drop his investigation into former national security adviser Mike Flynn, who was fired for failing to disclose conversations with Russian officials.
For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
Additional reporting by Abhinav Ramnarayan in London and Richard Leong and Saqib Iqbal Ahmed in New York