REFILE-GLOBAL MARKETS-Tensions over Hong Kong unnerve world stocks, oil tumbles

(Refiles to change "unnerves" to "unnerve" in headline)
* China plan to impose new security law on HK rattles
markets
* Stocks down, safe-havens rally
* Oil prices tumble more than 5%
* Graphic: World FX rates in 2020 http://tmsnrt.rs/2egbfVh

By Dhara Ranasinghe
LONDON, May 22 (Reuters) - World stocks took a hit on Friday
as China moved to impose a new security law on Hong Kong after
last year's pro-democracy unrest, further straining
fast-deteriorating U.S.-China ties.
These tensions plus news that China has dropped its annual
growth target for the first time added to concern about the
fallout from the COVID-19 pandemic, knocking oil prices down
more than 5% LCOc1 and boosting demand for safe-havens such
as U.S. government bonds US10YT=RR .
European shares opened broadly lower .STOXX , with
blue-chip indexes in London .FTSE , Paris .FCHI and Frankfurt
.GDAXI all down more than 1.5%.
That followed a sharp selloff in Asia after China said it
would impose new national security legislation on Hong Kong --
sparking a warning from U.S. President Donald Trump that
Washington would react "very strongly" against an attempt to
gain more control over the former British colony. Hong Kong's Hang Seng index .HSI slid more than 5% to a
seven-week low, MSCI's broadest index of Asia-Pacific shares
outside Japan .MIAPJ0000PUS fell 2.7%.
Japan's Nikkei .N225 slipped 0.8%, while U.S. stock
futures ESc1 1YMC1 fell almost 1% -- pointing to a weak open
for Wall Street.
U.S./China tensions have risen in the past few weeks, with
Washington ramping up criticism of China over the origins of the
coronavirus pandemic. Still, MSCI's world stock index .MIWD00000PUS , is up
around 2.5% this week as central bank stimulus in the face of
the coronavirus shock underpins investor sentiment.
"Overall it's fascinating to see that markets are shaking
off the very bad news on the future U.S./China relationship much
more now in the face of a global pandemic than it did last year
when the tensions were fraught," said Deutsche Bank strategist
Jim Reid.
"The relationship feels more in terminal decline now than it
did 6-12 months ago. Maybe the answer to this puzzle lies in the
central bank liquidity surge."
Reid noted that it took more than 3-1/2 years between
September 2008 and 2012 to "achieve" the $4.5 trillion
cumulative expansion in G10 central bank balance sheet assets
seen over the last 12 weeks.
Japan's central bank on Friday unveiled a lending programme
to channel nearly $280 billion to small businesses hit by the
coronavirus. India slashed interest rates for a second time this
year.
While expected by markets, the news that China has not set a
an economic growth target for the first time since the
government began publishing such goals in 1990, added to a sense
that the coronavirus fallout is likely to be
protracted. Brent crude LCOc1 fell more than 5% to $34.04 a barrel,
West Texas Intermediate (WTI) crude CLc1 dropped 6.8% to
$31.63. O/R
Safe-haven U.S. Treasury yields fell around 4 basis points
US10YT=RR and the dollar rallied.
In offshore markets, the Chinese yuan dipped to 7.15 per
dollar CNH=D3 -- its weakest in almost three weeks. The euro
slipped 0.4% to $1.0907 EUR= , while the dollar index =USD
rose 0.3% to 99.760.
"With this latest round of U.S.-China tensions and the risk
that any new wave of weaker risk appetite triggers dollar
strength, the focus on the important dollar/yuan exchange rate
could quickly intensify," said Saxo Bank chief economist and CIO
Steen Jakobsen. "Particularly if the 7.20 area comes under
pressure, which would point to China allowing its currency to
devalue."

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