* Europe’s shares weaken after heavy fall on Monday
* Wall Street futures slip following Trump’s tariff threat
* U.S.-China talks to continue this week; Chinese VP to attend
* Nikkei falls as Japanese markets reopen after 10-day break
* Brent oil drops back towards $70 a barrel
By Marc Jones
LONDON, May 7 (Reuters) - U.S. President Donald Trump’s latest threat to ramp up trade tariffs on China kept global share markets weak on Tuesday, while Turkey’s lira was back in trouble as concerns about its politics erupted again.
Europe’s main bourses and Wall Street futures were firmly back in the red after Trump’s threat on Monday to ratchet up tariffs on hundreds of billions of dollars of Chinese goods triggered the biggest global sell-off since March.
It had been a broadly steady start but that had made way for more selling. London was down more than 1 percent as it played catch-up after a long weekend, but Frankfurt, Paris and the pan-European STOXX 600 were down 0.6-0.8 percent too.
Some investors were still hoping that Trump’s moves were a negotiating tactic, especially after Beijing confirmed that its top negotiator, Vice Premier Liu He, would go to Washington for talks on Thursday and Friday as planned.
Though Japan’s Nikkei took a delayed hit of 1.5 percent having been closed for over a week, MSCI’s main global and Asia indexes largely held their ground overnight as Chinese shares also recovered from their worst drop in more than three years.
“We expect the situation to de-escalate as the issue seems solvable and Liu He, China’s lead negotiator, is continuing with his plans to travel to Washington D.C. for talks this week,” said Oxford Economics economist Louis Kuijs.
“Nonetheless, the probability of renewed escalation of the U.S.-China trade war has risen substantially, which would be a drag on their respective economies, especially on China.”
Following Trump’s tariff warning, U.S. officials accused China of backtracking on substantial commitments made during the months of negotiations between the two countries.
Beijing’s response to the prospect of new tariffs has been reserved, and on Tuesday, Foreign Ministry spokesman Geng Shuang told a news briefing that mutual respect was the basis for reaching a trade agreement.
“Adding tariffs can’t resolve any problem,” Geng said. “Talks are by their nature a process of discussion. It’s normal for both sides to have differences. China won’t shun problems and is sincere about continuing talks,” he added.
China’s yuan had recouped some of its early Asia session losses against the dollar but it remained hobbled near 2-1/2 month lows in the international ‘offshore’ markets at 6.7833 yuan per dollar.
There was plenty more keeping traders busy too.
Australia’s dollar jumped almost 1 percent to a one-week top of $0.7048, after the country’s central bank kept rates on hold, wrongfooting some who had expected it to cut.
Other major currencies remained confined to well-trodden ranges, with the dollar steady at 110.63 yen and the euro trading virtually flat at $1.1195 despite new European Commission forecasts highlighting Italy’s debt worries.
With no changes in the government’s spending policies, Italy’s budget deficit is also set to grow, to 2.5 percent of output this year and to 3.5 percent in 2020, beyond the 3.0 percent ceiling set by EU fiscal rules.
In emerging markets, the Turkish lira came under renewed heavy fire after the country’s elections board decided to cancel a municipal election in Istanbul and order a re-run.
It slid as much as 1.5 percent and past the 6.15 per dollar threshold, which also sent Istanbul’s stock market and government bonds tumbling badly too.
“The rule of law is under scrutiny by markets,” UniCredit EM FX strategist Kiran Kowshik said.
“It is also clear that Turkish reserves are depleted and there are questions about whether Turkey can weather its immediate challenges without an external anchor like the IMF.”
In the commodity markets, oil dropped around 1 percent as the renewed doubts over U.S.-China trade talks offset the potential supply worries of U.S. sanctions on crude exporters Iran and Venezuela.
Back on Wall Street, digger giant Caterpillar, which is often seen as a proxy for China’s fortunes, dipped 0.6 percent in pre-market trading. Tariff-sensitive Boeing fell 1.4 percent too as talk of a downgrade from Barclays also hit the planemaker’s stock..
The U.S. earnings season is now in the homestretch and of the 392 S&P companies that have reported so far, about 75 percent have surpassed analysts’ estimates, according to Refinitiv data.
The upbeat reports have also turned around earnings estimates for the first quarter to an almost 1 percent rise, a huge improvement from the 2.3 percent decline expected at the start of the season last month.
Additional reporting by Tom Arnold in London Editing by Gareth Jones