* U.S. yield curve flattens on soft data, Washington shakeup
* Wall Street slips as industrials lag
* Trade war threat drives demand for high-grade euro zone bonds (Updates with U.S. trading; changes byline and dateline)
By Nick Brown
NEW YORK, March 14 (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. on Tuesday, Reuters reported that the U.S. was seeking to impose tariffs on up to $60 billion of Chinese imports. news contributed to a continued flattening on Wednesday of the U.S. yield curve, a move also aided by a third consecutive monthly decrease in retail sales data. 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 US10YT=RR last rose 11/32 in price to yield 2.8079 percent, from 2.848 percent late on Tuesday.
"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. news from China spurred higher openings on Wall Street, but the main stock indexes could not weather political fears as trading wore on.
China reported industrial output expanding at a surprisingly faster pace at the start of the year. Fixed asset investment also beat forecasts, while retail sales improved 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 (NYSE:BA) BA.N sent U.S. stocks reeling in morning trading.
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.
Emerging market stocks lost 0.49 percent. MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS closed 0.34 percent lower, while Japan's Nikkei .N225 lost 0.87 percent.
The Chinese data spurred an early spike for oil, before prices dropped later.
U.S. crude CLcv1 fell 0.36 percent to $60.49 per barrel and Brent LCOcv1 was last at $64.50, down 0.22 percent on the day.
In currencies, the dollar index .DXY rose 0.18 percent, with the euro EUR= down 0.26 percent to $1.2357.
The Japanese yen strengthened 0.38 percent versus the greenback at 106.17 per dollar, while sterling GBP= was last trading at $1.3928, down 0.22 percent on the day.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Global trade and GDP growth
http://reut.rs/2FtPzhW China's trade with the United States
http://reut.rs/2h7NNMm Trump fires Tillerson, a moderate; replaces him with hawkish spy chief Pompeo
nL1N1QV0JE TREASURIES-Yield curve flattens on soft data, Washington shakeup
nL1N1QW0KP Trade war threat drives demand for high-grade euro zone bonds
nL8N1QW3S6 Adidas (DE:ADSGN) boost and strong miners keep European shares afloat
nL8N1QW1YW Trump seeking tariffs on up to $60 bln Chinese goods; targets tech, telecoms
nL1N1QV1W9
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