GLOBAL MARKETS-European shares recover, but trade worries mount

* Latest U.S. sanctions on Huawei undermine market sentiment
* Dutch bond yields hover above negative territory
* Weak U.S. data raises interest rate cut bets
* China stocks gain on government support hopes
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

By Saikat Chatterjee
LONDON, May 16 (Reuters) - European stocks rose half a
percent to the day's highs on Thursday, erasing earlier losses,
while the euro gained in volatile trade as the threat of auto
tariffs were pushed back.
But falling government bond yields globally meant attention
remained focused on the trade dispute between China and the
United States, after Washington hit Chinese telecoms company
Huawei with sanctions.
"Manufacturing growth in Europe continues to be a source of
concern as seen by recent PMI data and unless we see a firm
resolution on the trade war front, the uncertain outlook will
continue to be a headwind for markets," said Mike Bell, a global
markets strategist at JP Morgan Asset Management in London.
European shares .MSER rose half a percent, up nearly a
percent from the day's lows. German stocks .GDAXI also surged.
U.S. stock futures ESc1 were up 0.4 percent, signalling a
stronger start on Wall Street.
The surge in European stocks and gains by Chinese and Hong
Kong stocks pushed an index of global stocks .MIWD00000PUS
into positive territory.
German government bond yields DE10YT=RR were near their
lowest in almost three years. Dutch bond yields NL10YT=RR were
about to reach negative territory, a level not seen since
October 2016. German yields are now four basis points below
their Japanese counterparts, the biggest gap since late 2016.
Late on Wednesday, the U.S. Commerce Department said it was
adding China's Huawei Technologies Co Ltd HWT.UL and 70
affiliates to its "Entity List" - a move that bans Huawei from
acquiring components and technology from U.S. companies without
government approval. The move surprised global markets, which had steadied the
day before after Reuters reported that U.S. President Donald
Trump was planning to delay tariffs on auto imports.
CUT BETS GROW
As trade tensions re-emerged, weak U.S. data ratcheted up market
expectations of the Federal Reserve would cut U.S. interest
rates this year. Retail sales unexpectedly fell in April and
industrial production dropped 0.5%, the third decline this year.
Yields on 10-year U.S. Treasury bonds fell to 2.3%
US10YT=RR , near a 15-month low of 2.340% on March 28.
Fed funds rate futures 0#FF: are fully pricing in a rate
cut by the end of this year and more than a 50% chance of a move
by September.
"That is a sea change from a year ago, when the consensus
was three to four rate hikes a year," said Akira Takei, bond
fund manager at Asset Management One.
Falling U.S. yields have eroded support for the dollar,
which was flat against a basket of other currencies .DXY .
Oil prices gained on concern mounting tensions in the Middle
East would hitting global supplies. Brent crude LCOc1 rose
0.1% to $72 a barrel and U.S. West Texas Intermediate (WTI)
crude CLc1 reached $62.73, half a percent higher.
Gold slipped 0.2% to $1,293.9 per ounce XAU= .
For Reuters Live Markets blog on European and UK stock
markets, please click on: LIVE/

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