(Refiles to fix typographical error in first paragraph)* Trump's tariff on steel and aluminium raises trade warfears* U.S. debt yields fall as trade worries dwarf inflationjitters* U.S. junk bonds post largest fall since Nov 2016By Hideyuki SanoTOKYO, March 2 (Reuters) - Stock markets in Asia extended aselloff on Wall Street as investors were rattled after PresidentDonald Trump announced the United States would impose heftytariffs on steel and aluminium imports, raising the spectre of aglobal trade war.
Early on Friday, MSCI's broadest index of Asia-Pacificshares outside Japan dipped 0.2 percent whileJapan's Nikkei tumbled 2.4 percent.On Wall Street, the S&P 500 lost 36.16 points, or1.33 percent, to 2,677.67 on Thursday, coming a day after theinvestors sold off heavily on worries the Federal Reserve mightincrease rates more than expected this year.
Trump said the duties of 25 percent on steel and 10 percenton aluminium would be formally announced next week, althoughWhite House officials later said some details still needed to beironed out. Investors fear Trump's decision could spark retaliatorymoves from major trade partners like China, Europe andneighbouring Canada in a blow to the global economy. The anxiety was underscored by Canada's quick response,with officials in Ottawa saying they will retaliate against anyU.S. tariffs on steel and aluminium products. The concerns of a harmful trade war eclipsed the upbeat U.S.economic data published on Thursday, including a rise in themanufacturing index to 14-year highs and another showing thenumber of Americans filing for unemployment benefits hitting a48-year low. U.S. inflation picked up as the PCE price index, a gauge ofunderlying inflation, advanced 0.3 percent in January - thelargest gain since January 2017. On the year, it posted anincrease of 1.5 percent, same as the previous two months."Even if you manufacture goods, if someone doesn't buy them,you have to scale back your production, leading to slowdown inglobal economic activities," said Daisuke Uno, chief strategistat Sumitomo Mitsui Bank."I would expect markets entered another period ofcorrection," he added.U.S. Treasury yields fell as the risk of a trade warappeared to push aside considerations of inflation, a majortheme that spooked global financial markets earlier this year.The 10-year U.S. Treasuries yield fell to 2.811percent, hitting its lowest level in three weeks and furtherextending the distance from its four-year peak of 2.957 percenttouched on Feb 21.In the currency market, the dollar's rebound following the bullish comments on the U.S. economy from new Federal ReserveChair Jerome Powell on Tuesday lost steam.The euro jumped back to $1.2271, after having hit aseven-week low of $1.21545.The dollar slipped to 106.12 yen , edging back towardsits 15-month low of 105.545 set on Feb 16.Oil prices were also under pressure, having fallen more thanone percent the previous day as Trump's trade move raisedworried about the global economy. U.S. crude traded at $61.23 per barrel, up 0.4percent in Asia on Friday after having fallen to two-week low of$60.18 on Thursday. It is down 3.7 percent so far this week.<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^MSCI, Nikkei datastream chart ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Editing by Shri Navaratnam)
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