By Nick Brown
NEW YORK (Reuters) - Simmering fears of a global trade war on Wednesday overshadowed robust data from China and kept government bond yields low in the U.S. and Europe, with U.S. stocks sinking into the red amid a drop in industrial shares.
U.S. President Donald Trump on Tuesday fired Secretary of State Rex Tillerson, seen as a free-trade proponent, replacing him with the more hawkish former Central Intelligence Agency Director Mike Pompeo.
Later on Tuesday, Reuters reported that the U.S. was seeking to impose tariffs on up to $60 billion of Chinese imports.
The spread between five-year notes and 30-year bonds, an indicator of the shape of the yield curve, lowered to 44.9 basis points on Wednesday, 3 basis points below its last close.
Benchmark 10-year notes
"Long-term, continuing rate hikes will keep the flattening going," said Michael Cloherty, head of U.S. rates strategy at RBC Securities in New York, though in the short-term, he said, "we're a little flatter than we should be."
In Europe, high-rated government bond yields edged higher but remained near recent lows. German 10-year government bond yields seesawed in midday trades, falling to a one-and-a-half-month low at 11:25 a.m. ET.
That came on the heels of consumer price data on Tuesday that pointed to annual U.S. core inflation steady at 1.8 percent, cementing investors' expectations that the Federal Reserve would not raise rates more than three times in 2018.
But dips in industrial stocks, including a 4.4 percent drop in shares of Boeing
The Dow Jones Industrial Average <.DJI> fell 240.62 points, or 0.96 percent, to 24,766.41, the S&P 500 <.SPX> lost 11.3 points, or 0.41 percent, to 2,754.01 and the Nasdaq Composite <.IXIC> dropped 20.44 points, or 0.27 percent, to 7,490.58.
"The market is still trying to weigh concerns about tariffs on one hand and understanding how the President acts and how he speaks openly and comes up with a different policy in the end," said Robert Pavlik, chief investment strategist at SlateStone Wealth.
The pan-European FTSEurofirst 300 index <.FTEU3> lost 0.10 percent and MSCI's gauge of stocks across the globe <.MIWD00000PUS> shed 0.39 percent.
The Chinese data spurred an early spike for oil, before prices dropped later.
In currencies, the dollar index <.DXY> rose 0.18 percent, with the euro
The Japanese yen strengthened 0.38 percent versus the greenback at 106.17 per dollar, while sterling
(Additional reporting by Sujata Rao, Sruthi Shankar and Kate Duguid; Editing by Bernadette Baum)