* Emerging and Italian equities lead downturn
* Trump's tariff threat met with warnings of retaliation
* Italian voters deliver a hung parliament
* Euro falls versus yen, dollar (Updates prices, adds quotes)
By Sujata Rao
LONDON, March 5 (Reuters) - World shares slipped for thefifth straight day on Monday and emerging markets weakenedsharply, hit by the prospect of a global trade war and politicalinstability in Europe after Italy's inconclusive weekendelection.
While most markets stabilised after sharp losses early inthe day, assets considered low-risk - including gold, the yenand German bonds - remained in demand, with yields on the latterat the lowest in a month.
Recent events have again put equity markets, barelyrecovered from their February selloff, under a cloud.
The European Union, Canada and China are among thosethreatening to retaliate with tit-for-tat duties if U.S.President Donald Trump proceeds with hefty tariffs on steel andaluminium imports. a full-blown trade war could significantly damagecompany profits, equity returns and economic growth, all ofwhich have benefited from the trade upswing of recent years.World shares have risen around 50 percent since early-2016.
Jitters grew further after Sunday's Italian election, wherevoters delivered a hung parliament, flocking to anti-immigrantand eurosceptic parties in record numbers, potentiallyendangering stability and wider European integration. is nothing in the global set-up that's positive forequities at the moment especially as (share) prices are stillout of whack with latest developments," said Salman Ahmed, chiefinvestment strategist at Lombard Odier Investment Managers.
Wall Street, where the Dow Jones index fell 3 percent lastweek, was set to open weaker, futures indicated ESc1 1YMc1
While Italian stocks remained 1 percent lower at six-monthlows .FTMIB , broader European markets reversed opening lossesto rise 0.5 percent. .STOXX
That left MSCI's all-country equity index marginally in thered, .MIWD00000PUS though emerging equities fell 0.7 percent .MSCIEF , near three-week lows.
Ahmed said developments in Italy represented a "amedium-to-small shock" with implications for asset prices, whilethe risk of trade wars was a far bigger issue.
"Markets are not priced for trade wars and now you are alsoseeing a negative reaction to the U.S. moves from Europe andCanada," he said.
"The major vulnerability is in emerging markets," he added,referring to the developing world's reliance on trade.
Most emerging currencies weakened around 0.3-0.5 percent tothe dollar KRW= RUB= ZAR= . Export-reliant Asian boursessuch as Hong Kong and Seoul closed 1-2 percent lower .HSI
OVERSHADOWING GERMANY
The growth concerns pushed investors towards Bunds, with10-year German yields falling to nearly six-week lows DE10YT=RR . Gold likewise benefited from the turbulence, risingto one-week lows XAU= .
Yields on 10-year Italian government bonds IT10YT=RR jumped 10 basis points at the open, reversing some of the gainsthey had enjoyed in the run-up to the election but they laterclawed back some losses to trade 6.5 bps higher.
Yields on other lower-rated European bonds from Spain andPortugal also were up on the day ES10YT=RR PT10YT=RR .
Investors noted Italy had overshadowed positive news fromGermany where Social Democrats on Sunday decisively backedforming a coalition government with Chancellor Angela Merkel'sconservatives ending a five-month stalemate.
Also, unlike past crises as in 2012, Europe's robustlygrowing economy was seen mitigating some political risks.
"Investors still believe that politics appear less likely toupset the apple cart than only a year ago and Eurozone growthcould be hitting three percent this year," said John Taylor,fixed income portfolio manager at Alliance Bernstein in London.
The euro which earlier in the day fell 0.7 percent tosix-month lows versus the yen EURJPY=D3 , erased some losses tostand 0.2 percent lower by 1200 GMT while against the dollartoo, it rose to trade flat EUR=EBS .
The dollar meanwhile rose slightly off one-week lows againsta basket of currencies .DXY and stayed a touch off November2016 lows plumbed versus the yen immediately after Trump's tradethreats last week JPY=D3 .
Dollar traders might hold fire, however, until this Friday'sU.S. jobs data, the very dataset which triggered a selloff atthe end of January by stoking expectations of faster rate risesby the Federal Reserve.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^Political gridlock takes shine off Italy debt rally
http://reut.rs/2D0btXGGlobal trade and GDP growth
http://reut.rs/2DFt88jU.S. unemployment rate w/U-6 rate and wage growth data
http://reut.rs/2FbtmIx
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