August 5, 2019 / 11:41 AM / 16 days ago

GLOBAL MARKETS-Trade row slams stocks, yuan slumps to lowest in over a decade

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

* MSCI ACWI at lowest in over a month

* Yen, bonds and gold benefit

* Yuan falls to over 10-year low

By Ritvik Carvalho

LONDON, Aug 5 (Reuters) - Global stocks fell for a sixth day on Monday as an escalation of a trade war between the United States and China spooked markets and the yuan fell to its lowest levels in over a decade.

Safe-haven assets, including the Japanese yen, core government bonds and gold, rallied.

The pan-European STOXX 600 index shed 2% on top of the 2.5% it lost on Friday — its worst day so far in 2019 — after U.S. President Donald Trump signalled another round of tariffs on Chinese imports. The index was also on track for its biggest two-day decline in over three years.

“Markets had not been expecting the latest US-China trade talks to conclude with any significant breakthrough last week, but very few expected President Trump to slap 10% tariffs on $300 billion worth of Chinese goods,” said Hussein Sayed, chief market strategist at FXTM.

MSCI’s All Country World Index, which tracks shares in 47 countries, was down 0.7% on the day. Including Friday’s loss, that put it down almost 2%.

Asian shares suffered their steepest daily drop in 10 months, with MSCI’s broadest index of Asia-Pacific shares outside Japan sinking 2.5% to depths not seen since late January.

The VIX volatility index - also known as Wall Street’s “fear gauge” - rose to 21.48, its highest level since May 9. Europe’s equivalent hit its highest since early January. S&P 500 futures were 1.4% lower.

“We reiterate our view to scale back equity positions to strategic allocations after strong gains year to date, amid the ongoing trade-related uncertainties,” Credit Suisse analysts wrote in a note to clients.

The biggest mover in currencies was the yuan, which fell past the key level of 7 to the dollar as Chinese authorities - expected to defend the currency at that level - allowed it to break through to its weakest in the onshore market since the 2008 global financial crisis.

In offshore markets, the yuan fell to its weakest since international trading of the Chinese currency began. Headed for its biggest one-day drop in four years, it was last down 1.6% at 7.090 in offshore markets.

“Over the past couple of years, China has kept the renminbi stable against the basket, but with the renminbi TWI (trade-weighted index) now testing the lower end of the range in play since 2017, investors may turn nervous, introducing another dose of volatility,” Morgan Stanley strategists wrote in a note to clients.

The currencies of other Asian economies closely linked with China’s growth prospects also dropped.

The Korean won fell 1.4% against the dollar, on course for its biggest one-day loss since August 2016. The new Taiwan dollar fell more than 0.7%.

BID FOR SAFETY

Japan’s yen, which investors tend to buy in times of risk aversion, rose 0.7% to its highest since a January flash crash.

Dutch 30-year government bond yields turned negative for the first time as euro zone yields sank further amid concerns about U.S.-China trade and a no-deal Brexit.

U.S. 10-year yields fell to 1.7599%. Germany’s 10-year bund yields fell to as low as -0.53%.

The Swiss franc was also boosted by safe-haven demand. Trump is also eyeing tariffs on the European Union, but has yet to make a formal announcement. The euro surged, gaining 0.6% to the dollar at $1.1172.

Against a basket of currencies, the dollar fell to its lowest since July 25.

Sterling plunged to a 23-month low against the euro and near a 31-month low versus the dollar as fears of a disorderly Brexit grew.

Oil extended losses with U.S crude down 1% at $55.1 and Brent down 1.2% at $61.17.

Gold prices jumped more than 1% to their highest in more than six years, with spot gold prices up 1.1% to $1,456.51 per ounce. (Reporting by Ritvik Carvalho; additional reporting by Marc Jones in London; editing by Larry King)

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