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GLOBAL MARKETS-Stocks fall on trade angst; Brexit battle hurts pound

Rodrigo Campos

(Updates prices, changes comment)

* Safe havens yen, gold shine in flight to safety

* Worries over health of world economy hit oil

NEW YORK, Oct 8 (Reuters) - Oil prices and stocks across major markets fell on Tuesday as tensions rose between China and the United States ahead of high-level trade talks, while the British pound sank on reports that Brexit negotiations were close to breaking down.

Gold and the yen rose, indicating an increased appetite for safe-haven assets.

Washington widened its trade blacklist to include some of China's top artificial intelligence start-ups, punishing Beijing for its treatment of Muslim minorities and ratcheting up tensions ahead of trade talks in Washington this week.

"The headlines are painting a picture of a less optimistic tone to the trade talks this week," said John Zaller, chief investment officer of MAI Capital Management in Cleveland.

"Anything less than a tariff delay would be a pretty big disappointment for the markets."

An increase in U.S. tariffs to 30% from 25% on $250 billion worth of Chinese goods is scheduled for Oct. 15.

The Dow Jones Industrial Average fell 187.59 points, or 0.71 percent, to 26,290.43, the S&P 500 lost 28.91 points, or 0.98 percent, to 2,909.88 and the Nasdaq Composite dropped 80.14 points, or 1.01 percent, to 7,876.16.

The pan-European STOXX 600 index lost 1.10 percent and MSCI's gauge of stocks across the globe shed 0.81 percent.

Buoyed by gains in Asia, emerging market stocks were little changed. MSCI's broadest index of Asia-Pacific shares outside Japan closed just 0.24 percent higher. Japan's Nikkei rose 0.99 percent.

Investors of Chinese mainland stocks returned from a week-long holiday to boost the index by 0.3%, but a private survey showed growth in China's services sector at its slowest in seven months in September.

With the focus turning to trade talks, U.S. President Donald Trump said he hoped Beijing would find a humane and peaceful resolution to political protests in Hong Kong, and said that situation had the potential to hurt the trade discussions.

GLOBAL GROWTH CONCERNS

The flight to safety also pushed some bond prices higher, with German bund yields edging down. U.S. Treasury yields also fell as expectations grew for a Federal Reserve interest rate cut in October following a big drop in the U.S. producer price index and an intensification of trade tensions with China.

Benchmark 10-year Treasury notes last rose 4/32 in price to yield 1.5391 percent, from 1.553 percent late on Monday.

Market participants keenly await comments from Fed Chairman Jerome Powell, who is due to speak at a meeting in Denver, Colorado later in the day, after weak data raised concerns the U.S. economy may be heading toward a protracted slowdown.

Despite expectations for lower rates, the U.S. dollar rose against a basket of six peers.

The dollar index rose 0.18 percent, with the euro down 0.15 percent to $1.0953.

Sterling tumbled after reports that Brexit talks between Britain and Brussels were close to breaking down.

The EU accused Britain of playing a "stupid blame game" after a Downing Street source said a deal was essentially impossible because German Chancellor Angela Merkel had made unacceptable demands.

Sterling last traded at $1.2216, down 0.60 percent on the day.

The safe-haven yen strengthened 0.13 percent versus the greenback at 107.17 per dollar.

In emerging market currencies, the focus remained on the Turkish lira, which treaded water after hitting a five-week low in early trade over concerns about a planned Turkish military incursion in northern Syria.

Trump threatened to "totally destroy and obliterate the Economy of Turkey" if he considered Ankara's moves "off limits," even as the U.S. leader opened that door by ordering the withdrawal of U.S. troops from the area.

The Turkish lira gained 0.06 percent versus the U.S. dollar at 5.83 after falling more than 2% on Monday.

New IMF Managing Director Kristalina Georgieva said trade tensions could mean a loss of around $700 billion to the world economy by 2020, or about 0.8 percent of global GDP.

Worries over the health of the world economy sent oil prices lower even as anti-government protests resumed overnight in Iraq, OPEC's second-largest producer.

U.S. crude fell 0.87 percent to $52.29 per barrel and Brent was last at $57.93, down 0.72 percent on the day.

"The market's focus remains on trade tensions and oil demand concerns, ignoring the elevated geopolitical tensions in the Middle East and lower OPEC production in September," said UBS oil analyst Giovanni Staunovo.

"Growing recession risks have capped the upside of oil prices."

The U.S. Energy Information Administration cut its 2020 world oil demand growth forecast by 100,000 barrels per day to 1.30 million bpd, or about 7%.

Spot gold added 0.4 percent to $1,499.81 an ounce. U.S. gold futures gained 0.05 percent to $1,498.40 an ounce.

Copper lost 0.61 percent to $5,687.00 a tonne.

(Reporting by Rodrigo Campos; additional reporting by Karin Strohecker in London, Shreyashi Sanyal and Arjun Panchadar in Bengaluru, and Devika Kumar, Kate Duguid and Saqib Iqbal Ahmed in New York; Editing by Dan Grebler and Bernadette Baum)