* European stocks stumble back into the red
* French consumer spending data, Italian GDP weighs
* Dollar at 2 1/2-month high, Wall Street futures pointhigher
* Yuan at 10-year low, metals sink on trade war worries
* Graphic: World FX rates in 2018 By Marc JonesLONDON, Oct 30 (Reuters) - European shares laboured in thered and China's yuan hit a 10-year low on Tuesday as theprospect of an escalation in the U.S.-Sino trade war compoundedthe recent gloom in global markets.Traders reacted by sending the dollar a 2-1/2 month high andlifting futures prices on Wall Street's badly-bruised mainmarkets, which have lost between 7 and 10 percent during thismonth's turbulence. Asia had also made modest gains thanks to hints of economicstimulus from Beijing , but European bourses could notmaintain the momentum as some disappointing company results anddata from France and Italy triggered more caution. The euro wallowed near a 10-week low of 1.1352 too as thedollar climbed to its 2 1/2-month high against a basket of theworld's top six currencies.It was the 10-year low for China's yuan in Asia that grabbedmost attention, though, as it weakened to 6.9696 per dollar,stirring speculation over whether Beijing will tolerate a slidebeyond 7 per dollar. That had came on top of reports that Washington will imposetariffs on all Chinese imports by the end of the year withoutprogress at next month's meeting of Presidents Donald Trump andXi Jinping, though Trump then said in an interview that a "greatdeal" was still possible with China. "We don't see the trade war being resolved any time soon,"said Rabobank's senior macro strategist Teeuwe Mevissen. "And itcomes at a time when we see all the sentiment indicators in theeuro zone but also in the U.S., too, cooling down."There was more negative news out of Italy, the other majorconcern for Europe at the moment, as its coalition governmentfaces off with the European Commission over spending.
Data showed the Italian economy had ground to a halt in thethird quarter as both domestic demand and trade flows failed tospur any growth. The flat reading was the weakest since the fourth quarter of2014 and renewed the pressure on Italy's government debt in thebond markets. Italy's 10-year government bond yield was up 2.5 basispoints at 3.36 percent, having been as low as 3.32 percentearlier in the session. The closely watched spreadover German government debt was back up to 300 bps. Traders were also still digesting the news on Monday thatGermany's Chancellor Angela Merkel will step down as leader ofthe Christian Democrats (CDU), heralding the end of a 13-yearera in which she has dominated European politics. Friedrich Merz, a former parliamentary leader of Merkel'sconservative alliance, became the first candidate to officiallythrow their hat into the ring to succeed her on Tuesday. GLOBAL BEAR MARKET?Asia's choppy rise had come as China made a fresh attempt tostabilise its stock markets.Beijing's securities regulator said it would encourage sharebuybacks and mergers and acquisitions by listed firms and wouldenhance market liquidity. Mainland China's benchmark Shanghai Composite andthe blue-chip CSI 300 gained to 1.0 percent and 1.1percent, respectively, having initially fallen after Trump'sadministration had hit state-backed Chinese chipmaker FujianJinhua with U.S. restrictions on Monday. Japan's Nikkei average also erased early losses and
rose 1.5 percent as traders went shopping for bargains amongbeaten-down stocks. MSCI's broadest index of Asia-Pacific shares has lost 12 percent this month and is on track for its biggestOctober decline since 2008, during the global financial crisis.
"At this point, nobody can say the equity market isbottoming out. Global investor sentiment remains shaky," saidYasuo Sakuma, chief investment officer at Libra Investments inTokyo.
The speed with which a brief rally in U.S. stocks faded onMonday underscored that jittery mood.Wall Street was pointing to 0.4-0.5 percent gains later, butthe S&P 500 will be starting near a six-month low, havingdropped almost 10 percent from last month's record highs. The chill around China and global trade means emerging-market stocks are at an 18-month low. MSCI's index is down for asixth day in a row and Monday's post-election rally in Brazilwas already in the rear-view mirror. The CBOE Global Markets volatility index , known asWall Street's "fear gauge", was down a touch, but it had jumpedas high as 27.86 points, its second highest level since aworldwide volatility shock in early February.
"The probability of global stocks turning to a bear marketis increasing," said Masanari Takada, cross-assets strategist atNomura Securities.In the main commodity markets, oil prices were down aftereasing overnight as Russia signalled that output will remainhigh and as concern over the global economy led to worries aboutdemand for crude. West Texas Intermediate crude futures dropped 1.4percent to $66.13 per barrel. Brent crude futures fell1.8 percent to just under $76.Zinc and copper prices also buckled, along with other basemetals, after U.S. President Trump's warning of new tariffs onChinese goods.Trump has said during an interview with Fox News that hethinks there will be "a great deal" with China on trade, butsaid he had billions of dollars worth of new tariffs ready to goif a deal is not possible. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^Developed stocks performance vs earnings ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Additional reporting by Tomo Uetake in Tokyo, Editing by AngusMacSwan)
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