NEW YORK (Reuters) - Stocks around the world fell and U.S. Treasuries yields sent warning signals for a possible recession on Friday after weaker-than-expected U.S. and European data intensified fears of a global economic slowdown.

FILE PHOTO: The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, March 21, 2019. REUTERS/Staff

After weak U.S. manufacturing and services data, U.S. Treasury 10-year note yields sank below three-month Treasury bill yields for the first time since 2007. Investors fled from riskier bets as a yield curve inversion is seen as a leading recession indicator.

Earlier, German 10-year bond yields dived below zero for the first time since October 2016 after German data showed manufacturing contracted in March for a third straight month. Factory activity across the euro zone looked equally dismal.

Wall Street followed European shares lower and losses deepened even as strategists said a recession would take time to materialize or could even be averted.

“Our various models do see an uptick in recession probability but are flashing yellow versus red,” said Dan Ivascyn, group chief investment officer at Pacific Investment Management Co (Pimco) in Newport Beach, California.

All three major U.S. stock indexes registered their biggest one-day percentage losses since Jan. 3.

The Dow Jones Industrial Average fell 460.19 points, or 1.77 percent, to 25,502.32, the S&P 500 lost 54.17 points, or 1.90 percent, to 2,800.71 and the Nasdaq Composite dropped 196.29 points, or 2.5 percent, to 7,642.67.

The pan-European STOXX 600 index lost 1.22 percent and MSCI’s gauge of stocks across the globe shed 1.48 percent.

“The historical narrative behind that inversion is significant,” said Peter Kenny, Founder of Kenny’s Commentary LLC and Strategic Board Solutions LLC in New York.

“It is not however, a foregone conclusion that we will see a recession in 2019. It is an indication there is weakness on the horizon and frankly a lot of that weakness in that narrative is really being fed, fueled by what we are seeing around the world.”

The U.S. Federal Reserve on Wednesday adopted a more-dovish- than-expected stance, announcing no further interest rate hikes planned for this year and an end to its balance sheet roll-offs.

While some strategists said the Fed could start to cut interest rates to stave off a recession, others were cautious.

“I think the earliest would be December and even then I think it might just be a little too early,” said Justin Lederer, interest rate strategist at Cantor Fitzgerald in New York.

Preliminary measures of U.S. manufacturing and services activity for March showed both sectors grew at a slower pace than in February, according to data from IHS Markit. Manufacturing activity grew at the slowest pace since June 2017, and both the manufacturing and services purchasing manager index readings were weaker than analysts had forecast.

Even before the U.S. data, the 10-year yield had broken below the psychologically significant 2.5 percent level and went on to hit its lowest level since December 2017.

Benchmark 10-year notes last rose 29/32 in price to yield 2.4373 percent, from 2.539 percent late on Thursday.

Adding to the uncertainty were worries over how much progress the United States and China will make in their next round of trade talks.

U.S. President Donald Trump said negotiations were progressing and a final deal “will probably happen,” adding that his call for tariffs to remain on Chinese imported goods for some time did not mean the talks were in trouble.

Clete Willems, a top U.S. trade official who has been a key figure in China negotiations with China, said he would leave in coming weeks to spend more time with his family.

The dollar index rose 0.14 percent, with the euro down 0.69 percent to $1.1295.

But the Japanese yen strengthened 0.78 percent versus the greenback at 109.98 per dollar, while Sterling was last trading at $1.3204, up 0.74 percent on the day.

After plunging toward $1.30 on Thursday, Sterling recovered a little after European Union leaders gave Prime Minister Theresa May a two-week reprieve, until April 12, to decide how to leave the European Union.

Oil fell as much as 2.5 percent on demand worries as investors feared a slowdown in the global economy. [O/R]

U.S. crude fell 1.9 percent to $58.84 per barrel. Brent cure futures settled down 83 cents or 1.22 percent at $67.03 per barrel.