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GLOBAL MARKETS-U.S. stock futures, oil slide as trade wars stoke global recession fears

Hideyuki Sano

recession fears@

* S&P500 futures down 0.6% at 3-month lows

* 10-year U.S. bond yields at lowest since Sept 2017

* Money market futures price in 50% chance of Fed rate cut

* Asian stock markets: https://tmsnrt.rs/2zpUAr4

TOKYO, June 3 (Reuters) - U.S. stock futures, Asian share markets and oil prices slipped to multi-month lows on Monday on mounting worries growing Sino-U.S. tensions and Washington's new tariff threats against Mexico could tip the global economy into a recession.

The E-mini futures for S&P500 dropped 0.5% in early Asian trade to 2,738, near their March low of 2,722 while Japan's Nikkei skidded 1.1% to a four-month low.

MSCI's broadest index of Asia-Pacific shares outside Japan was little changed in early trade, but held barely above last week's four-month low.

Tensions between the United States and China escalated during the weekend as the two countries clashed over trade, technology and security.

A senior Chinese official and trade negotiator said on Sunday the United States cannot use pressure to force a trade deal on China, refusing to be drawn on whether the leaders of the two countries would meet at the G20 summit to work out an agreement later this month.

China will investigate whether FedEx Corp damaged the legal rights and interests of its clients, the official Xinhua news agency said on Saturday, after Chinese telecoms giant Huawei said parcels intended for it were diverted.

"You could see this as a retaliation against Washington's ban on Huawei. China could list FedEx in its black list of unreliable firms. We could see more of attacks on individual companies," said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

The standoff between the world's two largest economies go beyond trade, with tension running high ahead of the 30th anniversary of a bloody Chinese military crackdown on protesters around Beijing's Tiananmen Square.

China's Defence Minister Wei Fenghe warned the United States not to meddle in security disputes over Taiwan and the South China Sea.

The comments came after acting U.S. Defence Secretary Patrick Shanahan told the meeting on Saturday that the United States would no longer "tiptoe" around Chinese behaviour in Asia.

"No one now thinks a deal would be possible at G20. It is going to be a prolonged battle. Investors are rushing to the safe assets," Mitsubishi's Fujito said.

In a sign that Sino-U.S. frictions are putting a big strain on the global economy, South Korea's exports - seen as a bellwether of world growth- fell 9.4 percent fall in May, worse than a median forecast for a 5.6 percent decline, official data showed on Saturday.

The gloomy outlook has prompted traders to increase bets that the U.S. Federal Reserve will cut interest rates sooner rather than later.

Fed funds rate futures are now almost fully pricing in a rate cut by September, with about 50 percent chance of a move by July 30-31.

The 10-year U.S. Treasuries yield fell to as low as 2.125 percent, a nadir last seen in September 2017.

In oil markets, U.S. crude futures dropped 1.6% in early trade to $52.64, touching their weakest levels since mid-February.

Brent crude futures tumbled 1.6% to $61.01 per barrel, hitting lows last seen in late January.

Oil prices were also pressured by a sudden about-face by the Trump administration on Iran. U.S. Secretary of State Mike Pompeo said on Sunday Washington is prepared to engage with Iran without pre-conditions about its nuclear programme.

In the currency market, the safe-haven yen held firm. The dollar changed hands at 108.19 yen, having dipped to as low as 108.17, its weakest level since mid-January.

The euro, which has been declining at a steady pace this year, was little moved $1.1171, off last week's low of $1.1116.

The Chinese yuan traded at 6.9418 per dollar, near 5-1/2-month lows of 6.9497 touched on May 17.

The Mexican peso, hit by Trump's sudden threat to impose tariffs on Friday, regained some stability, trading at 19.6355 to the dollar, after its 2.5% fall on Friday.

Mexico's president Andres Manuel Lopez Obrador hinted on Saturday his country could tighten migration controls to defuse tensions with Trump, saying he expected "good results" from talks planned in Washington this week. (Editing by Shri Navaratnam)