* Washington says open to trade talks
* STOXX 600 up 0.7%; MSCI world equity index up 0.2%
* Yuan slips despite support from state banks
* Gold at six-year highs
* German 10-year bond yield falls to record lows
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
(Updates prices; adds Kiwi dollar)
By Tom Wilson
LONDON, Aug 7 (Reuters) - A cautious calm returned to stock
markets on Wednesday as softer rhetoric from Washington on the
U.S.-China trade war soothed investors, though demand for
safe-haven assets like government debt underscored lingering
anxiety over recession risks.
Europe's STOXX 600 .STOXX climbed 0.9% as deal-making in
the chemicals sector also helped it claw back ground after a
bruising three-day sell-off prompted by rising tensions between
Washington and Beijing.
MSCI's world equity index .MIWD00000PUS , which tracks
shares in 47 countries, also rose 0.2%. It had suffered its
worst day in 18 months on Monday.
But gold soared to a six-year high and benchmark government
debt from Germany to the United States was in high demand as
money still headed towards safe-haven assets.
Even as relative calm returns, bond markets in particular
have benefited from fears the trade war could spark a global
slowdown and bolster the case for looser monetary policy.
U.S. shares had gained overnight after President Donald
Trump downplayed worries of a lengthy trade war and senior
adviser Larry Kudlow said Trump's administration is planning to
host a Chinese delegation for talks in September Street futures gauges also rose.
The U.S. administration's remarks marked a shift in tone
from recent days, when Beijing warned that Washington's
labelling China as a currency manipulator on Monday would have
severe consequences for the global financial order.
Still, market players voiced caution. Trump's threat to
impose additional tariffs on more Chinese products is set to
take effect in less than a month.
"There is some cautious buying creeping back in," said
Michael Hewson, chief market strategist at CMC Markets. "But if
you want that to be sustained you have to look towards September
1, when the new tariffs kick in, and whether or not Trump
presses ahead with them."
MSCI's broadest index of Asia-Pacific shares outside Japan
.MIAPJ0000PUS was slightly lower.
Also easing the mood were signs that China is intervening to
steady the yuan after its recent sharp fall, soothing investor
fears of a global currency war.
The U.S. Treasury designated China a currency manipulator on
Monday after it allowed the yuan to weaken below 7 per dollar
for the first time in over a decade. The U.S. move rattled
financial markets and dimmed hopes the trade war was ending.
Since then, China's state banks have been active in the
onshore yuan forwards market, tightening dollar supply and
supporting the Chinese currency, sources told
Reuters. Despite that support, the yuan still dropped 0.2% to 7.0708
in offshore markets CNH=EBS , with currency markets still on
edge after the People's Bank of China (PBOC) set its official
reference rate at an 11-year low.
"We had a little bit of recovery yesterday, but this morning
we are seeing that stalling due to the PBOC fixing the
dollar-yen higher again," said Thu Lan Nguyen, FX strategist at
Commerzbank.
SAFE HAVENS IN DEMAND
The skittish mood was underlined by continuing demand for
currencies and commodities considered safe havens.
Gold touched a six-year high of $1,489.76 per ounce XAU= .
The Japanese yen rose 0.2% to 106.26 JPY=EBS , although that
was still some way from levels seen on Monday when the trade
war's escalation panicked investors.
The rush to the yen was also fuelled by a 2% slump in the
New Zealand dollar after its central bank made an aggressive
interest rate cut and said negative rates were possible,
promoting bets on further policy easing around the world..
Central banks across the world, looking to rev up growth and
fight low inflation rates, have turned increasingly dovish in
recent months.
But the extent of the Reserve Bank of New Zealand's move
caught markets off-guard, sending the Kiwi currency to its
lowest level since early 2016 and dragging the Australian dollar
down 0.4% to $0.6378 AUD=D3 .
U.S. bonds stood tall, retaining much of their gains made in
the past week. Ten-year Treasury notes yielded 1.66% percent
US10YT=RR , their lowest since 2016, as investors bet on
another rate cut by the Federal Reserve in September.
Germany's 10-year bond yield fell to record lows deep in
negative territory as the bigger-than-expected Kiwi interest
rate cut and weak German economic data fuelled further a rally
in bond markets. German industrial output fell more than expected in June,
adding to signs that Europe's biggest economy contracted in the
second quarter as its exporters were caught up in trade
disputes. In commodity markets, oil prices slipped to near seven-month
lows, with the potential for damage to the global economy and to
dampen demand from the Sino-U.S. trade dispute casting a shadow
over the market.
International benchmark Brent crude futures LCOc1 were at
$58.65 a barrel by 1107 GMT, down 19 cents, or 0.5%.
For Reuters Live Markets blog on European and UK stock
markets, please click on: LIVE/
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Germany's bond yield curve https://tmsnrt.rs/2YvAiL0
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