GLOBAL MARKETS-Asian shares extend losses as US-China trade war heats up

* MSCI Asia ex-Japan -0.4%; Nikkei off 1.9%
* Safe-haven yen strengthens to 109.20 per dollar
* U.S. 3-month, 10-year part of yield curve inverts
* Asian stock markets: https://tmsnrt.rs/2zpUAr4

By Andrew Galbraith
SHANGHAI, May 14 (Reuters) - Shares in Asia extended losses
on Tuesday following sharp falls on Wall Street overnight, the
yen strengthened and U.S. Treasury yields ticked lower as the
trade war between China and the United States escalated.
In early trade on Tuesday, MSCI's broadest index of
Asia-Pacific shares outside Japan .MIAPJ0000PUS was down 0.4%,
touching its lowest level since Feb. 15.
Australian shares .AXJO were down 1.2% while Japan's
Nikkei stock index .N225 slid 1.9%.
U.S. S&P 500 e-mini stock futures ESc1 were flat near
seven-week lows.
China on Monday announced it would impose higher tariffs on
$60 billion of U.S. goods following Washington's decision last
week to hike its own levies on $200 billion in Chinese imports.
The U.S. Trade Representative's office also said it planned
to hold a public hearing next month on the possibility of
imposing duties of up to 25% on a further $300 billion worth of
imports from China.
The tariff escalation has rattled global markets, even as
U.S. President Donald Trump said he would meet with Chinese
President Xi Jinping next month.
On Monday, the Dow Jones Industrial Average .DJI fell
2.38% to 25,324.99, the S&P 500 .SPX lost 2.41% to 2,811.87
and the Nasdaq Composite .IXIC dropped 3.41% to 7,647.02.
As investors flocked to safe-haven assets, U.S. Treasury
yields remained near six-week lows early on Tuesday. Benchmark
10-year Treasury notes US10YT=RR yielded 2.3962% compared with
a U.S. close of 2.405% on Monday.
The two-year yield US2YT=RR , which rises with traders'
expectations of higher Fed fund rates, ticked down to 2.1782%
from a U.S. close of 2.193%, with data from CME Group showing a
more than 75 percent chance of the Fed cutting rates by the end
of 2019.
Underscoring market concerns over the economic impact of the
trade war, 10-year yields remained below those on three-month
Treasury bills US3MT=RR . A sustained inversion of this part of
the yield curve has preceded every U.S. recession in the past 50
years.
On Monday, some traders had been concerned that China, the
largest foreign U.S. creditor, could dump Treasuries to counter
the Trump administration's hardening trade stance. But most
analysts downplayed such a possibility.
"If China did start to (sell Treasuries) it will galvanise
both side of politics in the U.S. against China and the Fed
would be sent into the market to buy bonds," Greg McKenna,
strategist at McKenna Macro said in a note to clients.
"That would expand its balance sheet but it would allow it
to neutralise China's efforts to disturb US financial markets.
So I doubt they'll try to sell Treasuries."
The dollar dropped 0.1% against the yen to 109.20 JPY= .
The single currency EUR= was up 0.1% on the day at
$1.1234, while the dollar index .DXY , which tracks the
greenback against a basket of six major rivals, was slightly
lower at 97.285.
Worries over an escalating trade war also hit commodity
markets, sending U.S. crude CLc1 down 0.11% to $60.97 a
barrel. Brent crude LCOc1 was off 0.3 percent at $70.01 per
barrel.
Gold rose amid broader market jitters, with spot gold XAU=
trading up 0.25% at $1,302.96 per ounce. GOL/ Bitcoin
BTC=BTSP gained 1.9% to $7,959.16.