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Stocks fall with bond yields as trade jitters trigger risk-off mode

➤ China makes veiled threat of using rare earths as trade war weapon.

➤ U.S. Treasury holds off on calling China a currency manipulator.

➤ EU sends letter to Italy over government finances.

➤ Gold climbs; oil drops below $69 per barrel.

Government bonds rallied across the globe while Wall Street declined with equities in Europe and Asia as investors flocked to safe havens amid trade tensions between the U.S. and China.

The S&P 500 and the Nasdaq 100 declined 0.6% each around 9:30 a.m. ET.

Shares in Chinese rare earth companies rose after a government official made a veiled threat that Beijing could use such minerals as leverage in its ongoing trade rift with Washington. JL Mag Rare-Earth Co. Ltd. soared 10% and China Northern Rare Earth (Group) High-Tech Co. Ltd. rose nearly 9%, while Hong Kong-based China Rare Earth Holdings Ltd. surged more than 23%.

But Asian equities ended the session broadly lower, with the Shanghai SE Composite index gaining 0.2%, Hong Kong's Hang Seng down 0.6% and Japan's Nikkei 225 falling 1.2%. MSCI's index of Asia-Pacific stocks outside Japan dropped 0.7%.

In Europe, the Stoxx 600 index fell 1.5% around 9:30 a.m. ET, with shares in ArcelorMittal dropping nearly 4% after the company said it will further reduce primary steel-making production in Europe. Meanwhile, the FTSE 100 index, Germany's DAX and France's CAC 40 all declined more than 1% each.

Yields on 10-year Treasurys lost 4 basis points to nearly 2.23%, indicating that bond traders are in a "risk-off mode," said David Madden, market analyst at CMC Markets UK, in a note.

German Bund yields ticked down 1 basis point to just below negative 0.17%, while those on Italian government bonds slipped 3 basis points to about 2.66%. The EU has sent a letter to the Italian government, seeking explanations regarding Rome's finances, Reuters reported.

The yield on 10-year Japanese government bonds dipped 2 basis points to negative 0.09%, while that on Australian bonds with the same maturity lost 5 basis points to 1.49%.

In currencies, the Chinese yuan traded unchanged at 6.91 to the dollar as the U.S. Treasury Department again stopped short of labeling China a currency manipulator but kept the country on a monitoring list of economies that "merit close attention," citing "significant concerns" about Beijing's exchange-rate practices.

While Washington's restraint was a relief, "this would not be enough to offset the China-U.S. trade tensions weighing on currencies," said analysts at DBS, adding that a meeting between President Donald Trump and Chinese leader Xi Jinping in June would be necessary to restart trade talks.

The dollar index, which tracks the U.S. currency's performance against a basket of peers, was broadly unchanged. The British pound and the Japanese yen were little changed against the greenback, and the euro rose 0.2%.

The Canadian dollar was down 0.1% against its U.S. counterpart ahead of the Bank of Canada's latest monetary policy decision, with markets expecting rates to be kept on hold.

Brent crude oil declined 1.8% to $68.85 per barrel. Gold rose 0.4% per ounce.

More from S&P Global Market Intelligence:

Strong dollar signals more pain for US exporters as trade war bites

Populists make little headway in European parliamentary elections

Top 50 US banks & thrifts in Q1'19

Individual annuity growth surge likely to slow soon

Multifamily loans rise 6% YOY in Q1'19

Technology disruption in healthcare to put more power in consumer's hands

The day ahead:

8:55 a.m. ET — U.S. Redbook

10 a.m. ET — Bank of Canada monetary policy decision

10 a.m. ET — U.S. Richmond Fed manufacturing index (Econoday consensus: 6)

10 a.m. ET U.S. State Street investor confidence index