(Adds details from Trump statement, gold and oil settlement prices)
* Graphic: World FX rates in 2020 tmsnrt.rs/2egbfVh
* U.S. to no longer recognize Hong Kong as autonomous
* U.S. stocks reverse loses
* MSCI All Country World Index down 0.2%
By John McCrank and Herbert Lash
NEW YORK, May 29 (Reuters) – Global stocks fell while bonds and the euro climbed on Friday as investors turned cautious over China’s national security law on Hong Kong, but U.S. stocks pared earlier losses after President Trump did not announce any new retaliatory tariffs.
China’s parliament on Thursday passed national security legislation for the city, throwing its freedoms and its function as a finance hub into doubt.
U.S. President Donald Trump said the United States would no longer recognize Hong Kong as sufficiently autonomous to merit special treatment, but he made no mention of reopening the recent U.S.-China trade deal.
U.S. stocks pared earlier losses, briefly turning positive after Trump’s statement. The Dow Jones Industrial Average fell 32.17 points, or 0.13%, to 25,368.47, the S&P 500 gained 8.33 points, or 0.27%, to 3,038.06 and the Nasdaq Composite added 96.28 points, or 1.03%, to 9,465.27.
Trepidation about a further deterioration in Sino-U.S. relations, which have soured considerably through the COVID-19 pandemic, has put investors on edge.
“The market was worried he was going to announce something substantial, something detrimental to the U.S. economy. Then as he spoke it became clear the actions being taken were not going to be as dramatic as originally feared,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance in Charlotte, North Carolina.
In Europe, the pan-regional STOXX 600 index lost 1.44% and MSCI’s gauge of stocks across the globe shed 0.08%.
Overnight in Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.2%. Japan’s Nikkei retreated from a three-month high and the yen rose to a two-week high of 107.06 against the dollar, while bonds rose.
The Chinese yuan weakened in offshore trade.
Hong Kong’s Hang Seng index declined 0.8% and has lost about 3% in the two weeks since news of China’s security legislation broke.
The yield on benchmark 10-year U.S. Treasury notes last rose 0.651 basis points to 0.651%.
Federal Reserve Chair Jerome Powell on Friday reiterated the U.S. central bank’s promise to use its tools to shore up the economy amid the coronavirus pandemic, even as investor attention is turning to the next phase of its response.
Massive amounts of government stimulus helped lift global stocks in May, offsetting reams of grim economic data.
Equity markets have had difficulty gauging the pandemic’s impact on earnings. But data on Friday showed a record drop in U.S. consumer spending for the second straight month and the highest-ever saving rate, as consumers grappled with the uncertainties surrounding the economy.
Investors, meanwhile, have been buying stocks as lockdowns have been lifted or eased, betting on a speedy recovery.
The S&P 500 gained around 4% for the month, making it the best May since 2009.
MSCI’s All Country World Index, which tracks stocks across 49 countries, was up around 3.5% this week – its best weekly performance since April.
The euro climbed above its 200-day moving average on Friday for the first time since late March as the European Union’s 750 billion-euro coronavirus recovery fund fueled optimism about the EU’s political future. It was up 1.3% month-to-date against the greenback, last trading at $1.1097.
The dollar index fell 0.116% against a basket of currencies.
U.S. gold futures settled up 1.4% at $1,751.70 an ounce.
U.S. crude oil prices jumped more than 5%, while Brent, the international benchmark, also edged up. U.S. crude futures rose $1.78 to settle at $35.49 a barrel, while Brent settled up 4 cents at $35.33 a barrel.
Both contracts had their biggest monthly gains in years as production cuts and optimism about demand recovery led by China supported prices.
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