NEW YORK (Reuters) - Equities and oil futures fell sharply on Tuesday, as investors worried U.S.-China negotiations were floundering and that an escalating trade war could damage global growth.

Traders work on the floor at the New York Stock Exchange (NYSE) in New York, U.S., May 7, 2019. REUTERS/Brendan McDermid

U.S. Treasury yields fell and the yen rose against the dollar as investors sought safe havens. Equities fell early and losses got steeper throughout a volatile session as investors bet that U.S. President Donald Trump’s weekend threat to hike tariffs on hundreds of billions of dollars of Chinese goods could materialize at the end of the week.

U.S. Trade Representative Robert Lighthizer on Monday vowed to continue talks but said that as of now “come Friday there will be tariffs in place.”

After Lighthizer’s comments, many investors worried that Trump’s tariff threats were not just a negotiating tactic.

“The signs of a potential breakdown in the talks are really what’s fueling the risk off trading,” said Peter Kenny, founder, Kenny’s Commentary LLC in New York.

“What’s even more significant is not just that the talks appear to have hit a road block but the perception that China is trying to renegotiate key elements of the deal.”

The Dow Jones Industrial Average fell 473.39 points, or 1.79%, to 25,965.09, the S&P 500 lost 48.42 points, or 1.7%, to 2,884.05 and the Nasdaq Composite dropped 159.53 points, or 1.96%, to 7,963.76.

The S&P ended above its session low but registered its third biggest daily percentage drop of 2019.

“People are starting to price in the fact that trade negotiations may fall apart or at least extend,” said Chris Zaccarelli, Chief Investment Officer, Independent Advisor Alliance, Charlotte, NC.

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“There are people who tried to buy the dip but at the end of the day there’s more people raising cash because they’re worried.”

MSCI’s gauge of stocks across the globe shed 1.23%, while the pan-European STOXX 600 index lost 1.37%. [.N] [.EU]

INVESTORS SEEK SAFETY

U.S. Treasury yields fell with longer-dated yields hitting five-week lows on safe-haven demand for bonds.

Benchmark 10-year notes last rose 12/32 in price to yield 2.4566%, from 2.5% late on Monday.

“Without a trade deal and a round of tariffs, that will have impact on economic growth,” said Mary Ann Hurley, vice president of fixed income at D.A. Davidson in Seattle. “That’s positive for bonds.”

The U.S. dollar gained against a basket of currencies but weakened against the Japanese yen as foreign exchange traders also sought out safe-haven assets and placed bets on increasing currency volatility.

The dollar index, tracking the greenback against six major peers, rose 0.05%, with the euro down 0.04% to $1.1192.

The Japanese yen strengthened 0.45% versus the greenback at 110.29 per dollar.

The offshore yuan had been on course for its worst daily drop in 10 months, briefly touching a four-month low of 6.8218, and it remained under pressure but recovered some ground. It was last down 0.38% at 6.797 yuan per dollar.

Oil prices closed at their lowest in over a month on concerns about global growth and expectations that U.S. crude stockpiles could hit 19-month highs.

U.S. crude oil futures settle at $61.40 per barrel, down 85 cents, or 1.37% while Brent futures settled at $69.88, down $1.36, or 1.91%.

Emerging market stocks lost 0.53%.