* US drug stocks hit by Amazon news
* Yields lowest since May on trade war fear, demand
* Chinese shares, yuan at new lows, Europe dips
* Oil prices firm, U.S. crude hits 3 1/2-year high
NEW YORK, June 28 (Reuters) - U.S.-driven trade confrontations hurt world stock markets and U.S. and German debt yields on Thursday, while Wall Street felt the additional brunt of a slump in health sector shares.
Wall Street opened lower amid Amazon's announcement that it would buy online pharmacy PillPack, moving the e-commerce giant further into the health space. The news sent shares of drug distributors and retailers plummeting.
The S&P health sector dropped 0.73 percent, the most among the 11 S&P sectors, while Amazon gained 0.8 percent. The biggest losses include a 10.5 percent drop in Walgreens Boots Alliance, a 9.3 percent tumble in CVS Health and a 10.1 percent fall in Rite Aid shares.
Still, gains in financial and technology shares helped U.S. stock indexes remain largely flat.
The Dow Jones Industrial Average fell 12.45 points, or 0.05 percent, to 24,105.14, the S&P 500 gained 1.52 points, or 0.06 percent, to 2,701.15 and the Nasdaq Composite added 10.90 points, or 0.15 percent, to 7,455.99.
An escalating trade fight between the United States with its major partners, including China, the European Union and Canada, has continued to dominate investors' mindsets, said Craig Erlam, senior market analyst at online forex broker Oanda.
"With Trump picking fights on multiple fronts and no sides showing any willingness to back down, we may have to get used to this risk-averse environment in the near-term," Erlam said.
Like Wall Street a day earlier, European shares and the Chinese yuan suffered after U.S. President Donald Trump and White House economic adviser Larry Kudlow outlined plans to clamp down on Chinese acquisitions of sensitive American technologies.
MSCI's gauge of stocks across the globe shed 0.30 percent, while the pan-European FTSEurofirst 300 index lost 0.96 percent.
Asian shares dropped to a nine-month trough and MSCI's emerging market index - which includes other hard-hit countries, including Mexico, Brazil, Turkey and South Africa - was at its weakest in almost a year.
U.S. Treasury and German Bund yields remained near one-month lows as investors moved into bonds for the guaranteed returns stocks cannot offer.
The yield curve between two-year and 10-year U.S. Treasury notes traded just above the low of 32 basis points reached on Wednesday, which was the flattest since 2007.
The U.S. dollar slipped against a basket of currencies as upbeat German inflation data prompted some traders to buy the euro, and data showing the U.S. economy slowed more than previously estimated in the first quarter weighed on the greenback.
The dollar index, which measures the greenback against a basket of six currencies, was down 0.04 percent at 95.232, after advancing about 1 percent over the last two sessions amid continuing tensions between the United States and its major trading partners.
Gold steadied after falling to its lowest in more than six months on the higher dollar.
A strong greenback makes dollar-priced gold costlier for non U.S. investors and while falling equities, seen as risky assets, usually help safe-haven gold, they have failed to do so this time.
Oil prices firmed, with U.S. crude near a 3.5-year high as investors eyed the prospect of a big fall in crude exports from Iran due to U.S. sanctions.
U.S. crude rose 1.29 percent to $73.70 per barrel and Brent was last at $77.66, up 0.26 percent on the day.
(Additional reporting by Marc Jones, Christopher Johnson, Maytaal Angel and Abhinav Ramnarayan in London, and Saqib Iqbal Ahmed and Karen Brettell in New York; Editing by Bernadette Baum)