By Laila Kearney
New York (Reuters) - Stocks were shaky around the globe and European assets sold off on Tuesday as anti-euro comments by an Italian lawmaker sent Italy's bond yields to multi-year highs and optimism over an agreement to revamp a North American trade deal receded.
The MSCI world equity index <.MIWD00000PUS> dipped 0.2 percent, paring Monday's gains that followed the new U.S.-Mexico-Canada trade deal. The pan-European FTSEurofirst 300 index <.FTEU3> lost 0.57 percent.
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The economics spokesman for Italy's ruling League party, Claudio Borghi, said in a radio interview that most of the country's problems could be solved by having its own currency.
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His comments drove Italian 10-year bond yields to a new 4-1/2-year high, pushing the spread between Italian and German yields to the widest for more than five years.
Shares in Italian banks <.FTIT8300>, which have large sovereign bond holdings, hit a 19-month low before recovering part of their losses.
"We are dealing with a war of words, with the euro on one side and Italy on the other," said Credit Agricole head of G10 FX Strategy Valentin Marinov. "There's a lot of headline risk about."
Borghi and Prime Minister Giuseppe Conte backed down, calling the euro "unrenounceable", helping to calm markets and erasing losses for Italy's FTSE MIB <.FTMIB>.
The euro > fell to its weakest since Aug. 21 at $1.1505, before retracing to $1.1541, down 0.30 percent on the day.
The single currency has been hurt by concerns that a significant increase in the Italian budget will deepen Italy's debt and deficit problems, and by extension the European Union's.
Asian stocks were lower as the boost from the agreement to save the North American free trade deal faded. The deal lifted optimism for a resolution of a trade row between the United States and China.
China's financial markets are closed for the week of Oct. 1-5 for national holidays, but data showing weaker factory growth in China also hit Hong Kong stocks.
The U.S. and Canada forged a last-minute deal on Sunday to salvage NAFTA as a trilateral pact with Mexico, rescuing a $1.2 trillion open-trade zone that had been about to collapse after nearly a quarter century in operation.
The trade pact helped the dollar index <.DXY> rise to its highest since Aug. 21, at 95.744. It last rose 0.21 percent.
The dollar's strength weighed on the leading emerging markets stock index <.MSCIEF>, which fell 1.2 percent, setting it on course for its biggest one-day loss for a month.
Gold rose as investors sought refuge in the safe haven after equity markets weakened. Spot gold > added 1.3 percent to $1,202.61 an ounce. U.S. gold futures
Oil prices eased slightly on Tuesday, remaining close to four-year highs on worries that global supplies will drop due to Washington's sanctions on Iran. [O/R]
"This is the market catching its breath," said Gene McGillian, director of market research at Tradition Energy in Stamford, Connecticut. The market steadied after rallying in three consecutive sessions.
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(Additional reporting by Helen Reid in London, Karen Brettell in New York, Sethuraman N R in Bengaluru; Editing by Louise Ireland, Susan Thomas and Frances Kerry)
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