* MSCI Asia ex-Japan -0.4%; Nikkei off 1.9%
* Safe-haven yen strengthens to 109.20 per dollar
* U.S. 3-month, 10-year part of yield curve inverts
* Asian stock markets: tmsnrt.rs/2zpUAr4
By Andrew Galbraith
SHANGHAI, May 14 (Reuters) - Shares in Asia extended losses on Tuesday following sharp falls on Wall Street overnight, the yen strengthened and U.S. Treasury yields ticked lower as the trade war between China and the United States escalated.
In early trade on Tuesday, MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.4%, touching its lowest level since Feb. 15.
Australian shares were down 1.2% while Japan’s Nikkei stock index slid 1.9%.
U.S. S&P 500 e-mini stock futures were flat near seven-week lows.
China on Monday announced it would impose higher tariffs on $60 billion of U.S. goods following Washington’s decision last week to hike its own levies on $200 billion in Chinese imports.
The U.S. Trade Representative’s office also said it planned to hold a public hearing next month on the possibility of imposing duties of up to 25% on a further $300 billion worth of imports from China.
The tariff escalation has rattled global markets, even as U.S. President Donald Trump said he would meet with Chinese President Xi Jinping next month.
On Monday, the Dow Jones Industrial Average fell 2.38% to 25,324.99, the S&P 500 lost 2.41% to 2,811.87 and the Nasdaq Composite dropped 3.41% to 7,647.02.
As investors flocked to safe-haven assets, U.S. Treasury yields remained near six-week lows early on Tuesday. Benchmark 10-year Treasury notes yielded 2.3962% compared with a U.S. close of 2.405% on Monday.
The two-year yield, which rises with traders’ expectations of higher Fed fund rates, ticked down to 2.1782% from a U.S. close of 2.193%, with data from CME Group showing a more than 75 percent chance of the Fed cutting rates by the end of 2019.
Underscoring market concerns over the economic impact of the trade war, 10-year yields remained below those on three-month Treasury bills. A sustained inversion of this part of the yield curve has preceded every U.S. recession in the past 50 years.
On Monday, some traders had been concerned that China, the largest foreign U.S. creditor, could dump Treasuries to counter the Trump administration’s hardening trade stance. But most analysts downplayed such a possibility.
“If China did start to (sell Treasuries) it will galvanise both side of politics in the U.S. against China and the Fed would be sent into the market to buy bonds,” Greg McKenna, strategist at McKenna Macro said in a note to clients.
“That would expand its balance sheet but it would allow it to neutralise China’s efforts to disturb US financial markets. So I doubt they’ll try to sell Treasuries.”
The dollar dropped 0.1% against the yen to 109.20.
The single currency was up 0.1% on the day at $1.1234, while the dollar index, which tracks the greenback against a basket of six major rivals, was slightly lower at 97.285.
Worries over an escalating trade war also hit commodity markets, sending U.S. crude down 0.11% to $60.97 a barrel. Brent crude was off 0.3 percent at $70.01 per barrel.
Gold rose amid broader market jitters, with spot gold trading up 0.25% at $1,302.96 per ounce. Bitcoin gained 1.9% to $7,959.16. (Reporting by Andrew Galbraith; Additional reporting by Richard Leong in NEW YORK; Editing by Richard Borsuk)