* Dollar rise sends euro, yen and emerging market currencieslower
* South Africa's rand slumps towards two-year low
* Chinese stocks snap five-day losing streak but Europeslips back
* Italian bond markets cling to budget optimism
* Metals hit by strong dollar but oil climbsBy Marc JonesLONDON, Sept 4 (Reuters) - A rebound in Chinese shares and arally in Italian bonds failed to keep Europe's spirits up onTuesday, as a renewed burst of dollar strength and news SouthAfrica had slumped into recession ramped up the pressure onemerging markets again.The sight of European shares at a two-month low , a 2.3percent thumping for South Africa's rand and fragileFacebook shares meant Wall Street was facing a choppyrestart after a long holiday weekend. India's rupee and Indonesia's rupiah had both slumped to newlows overnight in Asia too and the Turkish lira ,Mexican peso and Russian rouble were all deep inthe red again to complete a turbulent EM picture. Major FX pairs such as the euro and yen were knocked backtoo. The euro fell 0.5 percent to a 10-day low at $1.1558 while the yen dropped to 111.30 per dollarhaving strengthened during Asian trading. "The general sentiment is that the dollar has not done toobadly out of the trade war concerns, with concerns the U.S.might signal a fresh escalation in the trade conflict," saidKenneth Broux, an FX strategist at Societe Generale in London.The public comment period on a U.S. proposal for new tariffson Chinese goods is set to end on Thursday, after which U.S.President Donald Trump can follow through on plans to imposelevies on $200 billion more of Chinese imports, though it isunclear how quickly that will happen. What is sure though is that the concerns are starting totake their toll.
Manufacturing surveys published on Monday showed mountingstress on factories across Europe and Asia as the outlook forglobal trade dims. Emerging market currencies are coming in for specialpunishment. The latest drop in Turkey's lira took it back past6.6 per dollar and all eyes were on how Argentina's peso wouldfare during the Latin American session after itended more than 3 percent weaker on Monday.That came despite President Mauricio Macri announcing newtaxes on exports and steep cuts to government spending in whathe termed "emergency" measures to balance next year's budget aspart of a $50 billion IMF support package. "We are just waiting for something to turn the EM (emergingmarket) sentiment because the valuations look really attractive,but it's just a slow meltdown at the moment," said Standard LifeAberdeen EM portfolio manager Viktor Szabo.He pointed out that South Africa's rand had now wiped outall the gains it made after Cyril Ramaphosa replaced Jacob Zumaas the country's president in February.
METALS BUCKLE
European shares were down almost 1 percent ahead of the U.Sopening, reversing a positive start.
Financials held up a bit better, supported by strength amongsome Italian banks following soothing comments from Italianministers on forthcoming budget proposals.Well-placed sources told Reuters that Rome's EconomyMinister Giovanni Tria was pushing the governing coalition tokeep next year's budget deficit below 2 percent of output.Deputy Prime Minister Matteo Salvini had said on Monday that itwould not breach the European Union's 3 percent limit.Italian government bonds also rallied with yields ontwo-year bonds, flirting with their biggest daily drop in almostthree months at 1.265 percent. Yields move inversely to a bond'sprice.
The closely-watched Italy/Germany 10-year bond yield spreadalso narrowed ."I would say the overall price action is quite encouragingand Salvini's comments yesterday gave the market another push,"Commerzbank rates strategist Christoph Rieger said.Elsewhere it was a very different story. Emerging marketdebt presented an ugly picture amid the widespread gloom, whileexpectations that the Federal Reserve will raise U.S. interestrates again this month pushed up the yield on benchmark 10-yearTreasury notes to 2.8640 percent.More sensitive two-year U.S. yields touched 2.637percent, compared with Friday's close of 2.629 percent.The moves were also helped by rising oil prices.U.S. crude rose past the $71 per barrel mark, withproduction coming under pressure as two Gulf of Mexico oilplatforms were evacuated in preparation for a hurricane. U.S.crude was 0.5 percent higher at $70.15 per barrel. Brent crude was up at $79.03 per barrel afterearlier trading lower on news that India had permitted its staterefiners to import Iranian oil if Iran arranged tankers andinsurance. Gold was slightly lower as the dollar strengthened, withspot gold traded at $1,195 per ounce, while silver,palladium and industrial metals such as copper and nickel sawmore than 1 percent falls.(Additional reporting by Abhinav Ramnarayan and SaikatChatterjeeEditing by Catherine Evans)
Reuters Messaging: marc.jones.thomsonreuters.com@reuters.net