(New throughout, updates prices, market activity, comment; adds Trump on EU trade deal)
* European stocks drop 2.5%, biggest daily fall in 2019
* Interest rate futures price in Fed rate cut in Sept
* Oil prices rebound from biggest daily drop in years
By Rodrigo Campos
NEW YORK, Aug 2 (Reuters) - A measure of stocks across the globe was on track to post its largest weekly loss of the year on Friday while yields in U.S. and German debt were near multi-year lows, after China vowed to retaliate against a possible new round of U.S. tariffs.
Oil prices bounced back from losses that exceeded 7% the previous session and the yen scaled further against the dollar a day after its strongest daily gain in over two years.
The moves followed a sharp Wall Street selloff triggered by U.S. President Donald Trump's threat Thursday to impose a 10% tariff on $300 billion worth of Chinese imports.
China did not specify how it would retaliate, but analysts have said options include tariffs, a ban on export of rare earths used in everything from military equipment to consumer electronics, and penalties against U.S. companies in China. trade war between the world's largest economies has already dislocated global supply chains and slowed economic growth. The abrupt escalation capped a critical week for global markets after the U.S. Federal Reserve delivered a widely anticipated interest rate cut but played down expectations of many more ahead.
"The tariff threat was a splash of cold water. The market had become accustomed to the current state of U.S-China trade negotiations, but a hike in tariffs wakes you up to the fact that the trade war is still with us," said Michael Antonelli, market strategist at Robert W. Baird in Milwaukee.
The Dow Jones Industrial Average .DJI fell 188.95 points, or 0.71%, to 26,394.47, the S&P 500 .SPX lost 28.59 points, or 0.97%, to 2,924.97 and the Nasdaq Composite .IXIC dropped 132.18 points, or 1.63%, to 7,978.94.
The pan-European STOXX 600 index .STOXX lost 2.46% and MSCI's gauge of stocks across the globe .MIWD00000PUS shed 1.30%.
Emerging market stocks lost 2.12%. MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS closed 1.94% lower, while futures in Japan's Nikkei NKc1 lost 1.09%.
MORE FED CUTS SEEN
U.S. data on Friday showed employment growth in July slowed as expected, which along with trade turmoil may encourage the Federal Reserve to cut interest rates again in September.
"On balance it is probably a slightly dollar-negative (employment) number because (it) increases the case for a Fed rate cut in September. We're already at the point where we're trading that," said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets in New York.
A further 25-basis-point cut by the Fed is priced in for the central bank's September meeting while the chance of another cut in October is roughly 1-in-2 according to Fed futures markets.
Safe-haven assets were bid across markets with German 10-year government bond yields DE10YT=RR dropping to an all-time low of -0.502% and the country's entire government bond yield curve turning negative for the first time ever. 10-year notes US10YT=RR last rose 10/32 in price to yield 1.8571%, from 1.892% late on Thursday. They fell to 1.832% earlier, the lowest since November 2016.
"In the grand scheme of things, it will become clearer and clearer that the Federal Reserve has started an easing cycle and will have no choice but to cut rates further," said Akira Takei, fund manager at Asset Management One.
In currency markets the Japanese yen JPY= , which on Thursday gained the most in over two years against the dollar, further strengthened 0.74% to 106.58 per dollar.
The Swiss franc reached a two-year high of 1.0907 EURCHF= against the euro, which bounced back from a two-year low of $1.1027 earlier in the week. The common currency EUR= was recently up 0.23% to $1.1109.
The British pound held near a 30-month low versus the dollar as the governing Conservatives' majority in parliament was reduced to one seat, three months before the country is due to leave the European Union. GBP= was last trading at $1.2159, up 0.23% on the day.
U.S. crude CLc1 rose 3.02% to $55.58 per barrel and Brent LCOc1 was last at $61.78, up 2.12% on the day.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ GRAPHIC-$1 trillion wiped off global equities
https://tmsnrt.rs/33gSkzo GRAPHIC-Global assets in 2019
http://tmsnrt.rs/2jvdmXl GRAPHIC-Global currencies vs dollar
http://tmsnrt.rs/2egbfVh GRAPHIC-Emerging markets in 2019
http://tmsnrt.rs/2ihRugV
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