GLOBAL MARKETS-Stocks slip on tariffs, Argentina hit by capital controls

* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

* MSCI ACWI down 0.05%

* Euro down 0.2%

* Argentina returns to currency controls

* U.S. markets shut for holiday

By Ritvik Carvalho

LONDON, Sept 2 (Reuters) - Global markets remained subdued

on Monday after the United States and China imposed new tariffs

on each other, while the spotlight returned to emerging-market

risk as Argentina imposed capital controls.

Argentina's international dollar bonds dropped to record

lows, its financial stocks tumbled and risk premia shot up after

President Mauricio Macri re-imposed capital controls on Sunday

as the country battled to avoid its ninth sovereign default.

The about-face by Macri, who had previously lifted many

protectionist practices of his predecessor, Cristina Fernandez

de Kirchner, came after the government failed to stem heavy

investment outflows and to shore up its tumbling currency.

MSCI's All-Country World Index .MIWD00000PUS , which tracks

shares across 47 countries, was down 0.04% on the day.

U.S. markets were shut for a holiday on Monday. European

shares ticked higher as surprisingly positive data helped China

weather the latest round of tit-for-tat tariffs between the

United States and China that came into effect over the weekend.

Washington imposed 15% tariffs on a variety of Chinese goods

and China began to impose new duties on a $75 billion target

list. However, both sides will still meet for talks later this

month, U.S. President Donald Trump said. Trade-sensitive German shares .GDAXI were 0.4% higher and

the pan-European stocks benchmark index STOXX 600 .STOXX was

up 0.63% by midday in London, beginning September higher. It

fell 1.6% in August as the trade war intensified.

"Despite the market's sanguine take, we believe the ultimate

outlook for the trade dispute has become harder to predict with

confidence," said Mark Haefele, chief investment officer at UBS

Global Wealth Management.

"Since trade tensions have become the major driving force

for stocks, even greater than monetary policy, we advise against

adding significantly to equity exposure – particularly for those

who have an adequate strategic allocation."

Income-generating carry positions such as select emerging

market currencies will perform well as central banks ease policy

in response to weaker growth, Haefele added.

Euro zone manufacturing activity contracted for a seventh

month in August as declining demand sapped optimism, a survey

showed, strengthening expectations for monetary easing by the

European Central Bank next week. At its July meeting, the ECB all but promised to ease policy

as the growth outlook worsened.

Italian bond yields fell towards recent multi-year lows

after Italy's prime minister said at the weekend talks on a new

government should be completed by Wednesday. GVD/EUR The

5-Star Movement and the Democratic Party held talks over the

weekend on cabinet posts and a common agenda In currency markets, the dollar was 0.1% higher against a

basket of peers. .DXY .

The euro was 0.2% lower at $1.09665 EUR= , not far from

two-year low of $1.0963 hit in U.S. trade on Friday.

TRADE WAR

MSCI's broadest index of Asia-Pacific shares outside Japan

.MIAPJ0000PUS dropped 0.24%, led by 0.5% drop in Hong Kong's

Hang Seng .HSI after another weekend of violent

anti-government protests.

Chinese shares rose, however, with the CSI300 index

.CSI300 gaining 1.1% despite the trade row escalation. A

pledge by China's State Council to boost support for the economy

helped. Caixin/Markit Manufacturing Purchasing Managers' Index

(PMI), a private sector survey, on Monday showed factory

activity unexpectedly expanded in August, though gains were

modest and contrasted with official data that pointed to further

contraction. Washington imposed tariffs on a variety of Chinese goods and

while Beijing imposed new duties on U.S. crude, the latest

escalation in a bruising trade war. Studies suggest

the tariffs will cost U.S. households up to $1,000 a year.

Many market players say the market's reaction was likely

exaggerated by algorithm-driven players' flows in thin trading

at the start of Asian trade on Monday. Liquidity could be even

more limited than usual because of a U.S. holiday on Monday.

"(The market move) goes to show you how many data mining

algos are involved with equity-linked compared with

forex-linked. Was anyone surprised by these tariffs that took

effect yesterday?" said Takeo Kamai, head of execution at CLSA

in Tokyo.

Tension is also running high in Hong Kong. Police and

protesters clashed in some of the most intense violence since

unrest erupted more than three months ago Thousands of protesters blocked roads and public transport

links to Hong Kong airport and police made several arrests after

demonstrators smashed CCTV cameras and lamps and dismantled

station turnstiles.

China, eager to quell the unrest before the 70th anniversary

of the founding of the People's Republic of China on Oct. 1, has

accused foreign powers, particularly the United States and

Britain, of fomenting the unrest.

Oil prices fell on Monday. Brent crude LCOc1 futures

dropped 0.15% to $59.16 a barrel; U.S. West Texas Intermediate

(WTI) crude futures CLc1 were flat at $55.1 O/R