GLOBAL MARKETS-Shares rocky, yuan weakens as global trade talk shakes markets

* Trade war will only make us stronger, China's top paper
says
* MSCI world index falls, S&P 500 little changed
* Sterling falls as Brexit talks collapse
* China's yuan hits weakest since November
* U.S. consumer sentiment robust before escalation of trade
war

(Updates with afternoon U.S. trading)
By Lewis Krauskopf
NEW YORK, May 17 (Reuters) - A major global stocks index
fell modestly on Friday while the Chinese yuan weakened as
persistent global trade tensions hovered over financial markets.
Geopolitical concerns also spiked on news that talks
regarding Britain's split with the European Union had faltered,
putting pressure on the British pound.
MSCI's gauge of stocks across the globe .MIWD00000PUS shed
0.25%, but pared steep early losses.
"Markets are priced so close to perfection that it really
doesn't take very much of a wobble to any of the bull narratives
to catalyze moves in the market, and I think that's what we're
seeing with the trade headlines," said Pete Cecchini, chief
market strategist with Cantor Fitzgerald.
In China, the Communist Party's People's Daily wrote in a
front-page commentary that the U.S. trade war will only make
China stronger and will never bring the country to its knees.
It was the latest salvo in the trade conflict that has
involved tit-for-tat tariffs on imports involving the world's
two largest economies. Recent tensions caught some investors off
guard after they had expected the two sides to come to a
near-term deal to resolve the months-long trade dispute.
Meanwhile, the Washington Post and Politico reported that
U.S. officials have agreed to remove tariffs on steel and
aluminum imported from Canada and Mexico in 48 hours, paving the
way for the three North American counties to enact a new trade
pact. "What's driving the market on a day-to-day basis is the
24-hour news cycle of headlines primarily around U.S.-China
trade relations," said Walter Todd, chief investment officer at
Greenwood Capital Associates in Greenwood, South Carolina.
Wall Street's main indexes seesawed in afternoon trade.
The Dow Jones Industrial Average .DJI rose 35.07 points,
or 0.14%, to 25,897.75, the S&P 500 .SPX lost 1.01 points, or
0.04%, to 2,875.31 and the Nasdaq Composite .IXIC dropped
27.29 points, or 0.35%, to 7,870.76.
U.S. consumer sentiment jumped to a 15-year high in early
May amid growing confidence over the economy's outlook, but much
of the surge was recorded before an escalation in the U.S.-China
trade war, which could hurt activity. Shares of Deere & Co DE.N fell 6.3% after the agriculture
equipment maker cut its full-year outlook, as the trade war
threatens to hit farm incomes further. The pan-European STOXX 600 index .STOXX lost 0.36%.
In currencies, the Chinese yuan fell as far as 6.949 against
the dollar CNH= on Friday, its weakest since Nov. 30.
The dollar index .DXY , which measures the greenback
against a basket of currencies, rose 0.09%, with the euro EUR=
down 0.06% to $1.1165. Concern about next week's European
parliamentary elections dented demand for the euro. Sterling hit a four-month low after cross-party Brexit talks
collapsed and concern grew about the impact Prime Minister
Theresa May's likely resignation would have on Britain's exit
from the European Union. German bond yields DE10YT=RR fell back toward 2-1/2-year
lows following the escalating trade tensions and collapse of
Brexit talks. U.S. Treasury yields fell as traders sought safe-haven
assets. Benchmark U.S. 10-year notes US10YT=RR last rose 3/32 in
price to yield 2.3944%, from 2.405% late on Thursday.
U.S. crude CLcv1 fell 0.16% to $62.77 per barrel and Brent
LCOcv1 was last at $72.15, down 0.65% on the day.

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