Corrected: Stocks fall as declining U.S. yields, trade woes knock sentiment

(This story corrects S&P futures move in sixth paragraph.)

By Shinichi Saoshiro

TOKYO (Reuters) - Asian stocks fell on Wednesday, dragged by Wall Street's tumble as sharp declines in long-term U.S. Treasury yields and resurgent trade concerns stoked investor worries about global economic growth.

Global equities have been shaken as a flattening U.S. Treasury yield curve - a result of a steep fall in longer-dated yields - fanned recession jitters and as U.S.-China trade conflict woes resurfaced after a temporary lull.

MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> was down 0.6 percent.

Australian stocks <.AXJO> lost 1.3 percent after Australia's third quarter growth data fell short of expectations. The Australian dollar > was down 0.5 percent at $0.7307.

 

Japan's Nikkei <.N225> fell 1.15 percent and South Korea's KOSPI <.KS11> shed 1 percent.

The Dow <.DJI> retreated 3.1 percent and the Nasdaq <.IXIC> sank 3.8 percent on Tuesday. Wall Street's financial shares <.SPSY>, which are particularly sensitive to bond market swings, dropped 4.4 percent. [.N] S&P e-mini futures were up 0.3 percent in Asian trade on Wednesday.

Signals from the Federal Reserve last week that it may be nearing an end to its three-year rate hike cycle has pushed the 10-year U.S. Treasury yield to three-month lows below 3 percent.

Concerns about slowing U.S. growth have accelerated the flattening of the yield curve, a phenomenon in which longer-dated debt yields fall faster than their shorter-dated counterparts.

The spread between the two-year and 10-year Treasury yields was at its flattest level in over a decade.

A flatter curve is seen as an indicator of a recession, with lower longer-dated yields suggesting that the markets see economic weakness ahead.

"The U.S. economy is likely to be able to withstand another rate hike or two, therefore the flattening of the Treasury curve looks a little over done. That said, it is true that the economic outlook is murkier than before," said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management.

"There is also Brexit to keep an eye on, and this is a factor in the ongoing risk aversion."

British Prime Minister Theresa May suffered embarrassing defeats on Tuesday at the start of five days of debate over her plans to leave the European Union that could determine the future of Brexit and the fate of her government.

Risk markets were also weighed down as optimism faded over a truce made over the weekend between U.S. President Donald Trump and Chinese President Xi Jinping.

The dollar sagged in the wake of falling Treasury yields, with its index against a basket of six major currencies <.DXY> briefly stooping to a near two-week low of 96.379 overnight before edging back towards 97.00.

The greenback fell against the safe-haven yen, losing 0.75 percent overnight before stabilising at 112.86 yen >.

The pound was little changed at $1.2717 > having touched a 17-month low of $1.2659, rattled by Brexit setbacks in parliament.

Crude oil prices were lower amid fears that demand would stall on the back of the trade war between the United States and China. [O/R]

U.S. crude futures were down 0.8 percent at $52.82 per barrel.

(Editing by Sam Holmes)