* Asian stock markets : https://tmsnrt.rs/2zpUAr4
* Nikkei fall 2.3%, Asia shares ex-Japan -0.8%
* Yen gains, yields dive amid safe-haven rush
* Yuan under pressure as trade war escalates
* Gold jumps to highest since April 2013, oil slides
By Wayne Cole
SYDNEY, Aug 26 (Reuters) - Asian shares were a sea of red onMonday as the latest salvo in the Sino-U.S. trade war shookconfidence in the world economy and sent investors steaming tothe safe harbours of sovereign bonds, gold and the Japanese yen.
Yields on benchmark 10-year Treasury debtdropped to their lowest since mid-2016, while gold hit itshighest since April 2013 as risk was shunned.
The Chinese yuan also came under pressure, with the dollarquoted up at 7.1710 and markets braced for moreintervention from Beijing to support the currency.
MSCI's broadest index of Asia-Pacific shares outside Japanshed 0.8%, and Australia 1.7%.
Japan's Nikkei lost 2.3%, while E-Mini futures forthe S&P 500 were down 1.0%.
Wall Street nose-dived on Friday when President Donald Trumpannounced a 5% additional duty on $550 billion in targetedChinese goods, hours after China unveiled retaliatory tariffs on$75 billion worth of U.S. products.
At the G7 meeting in France over the weekend, Trump causedsome confusion by indicating he may have had second thoughts onthe tariffs.
But the White House said on Sunday that Trump wished he hadraised tariffs on Chinese goods even higher last week, even ashe signalled he did not plan to follow through with a demandthat U.S. firms close operations in China.
Trump is now set to hold a joint news conference with FrenchPresident Emmanuel Macron later on Monday.
"There is an uneasy feeling that the very fragilenegotiations are spiralling out of control," wrote analysts atANZ in a note.
"The escalation suggests uncertainty will continue to weighon global trade, industrial production and investment, with nosign of a resolution."
The latest broadside overshadowed a pledge by FederalReserve Chair Jerome Powell to "act as appropriate" to keep theU.S. economy healthy, although he stopped short of committing torapid-fire rate cuts.
The markets clearly believe, however, the Fed will have toact aggressively and are fully priced for at least aquarter-point cut in September and more than 110 basis points ofeasing by the end of 2020.
"Trump shows no signs of moderating his destructive tradepolicies," said JPMorgan analyst Adam Crisafulli.
"Central banks can't fully ameliorate the downside of aglobal trade war," he added. "Companies will enter lockdown modein terms of spending, and eventually hiring, until at least theNovember 2020 election amid all the uncertainty."
YIELD INVERSION
Yields on 10-year Treasury notes were down at1.476%, having dived from a top of 1.66% on Friday, leaving themalmost matching two-year yields.
"We continue to remain long 10's, targeting 1.3% due to acombination of weakness in the global economy and trade waruncertainty filtering through into a weaker U.S. economy," saidPriya Misra, head of global rates strategy at TD Securities.
"This will force the Fed to ease beyond a 'mid-cycleadjustment to policy'," he added. "We believe that the market isunderpricing the risks of additional rate cuts in 2020."
The drop in yields initially swept the legs out from underthe dollar, which slid 0.5% on Friday against a basket ofcurrencies and was last trading at 97.654.
It took a hit on the yen, considered a safe haven thanks toJapan's position as the world's largest creditor nation, and waslast down 0.3% at 105.04, having shed 1% on Friday.
The next major chart point is a low around 104.10 brieflytouched during the "flash-crash" of early January.
The euro was firm at $1.1145, having climbed 0.6% onFriday, although restrained somewhat by speculation the EuropeanCentral Bank will also have to ease aggressively next month.
The dollar fared better elsewhere, making inroads on mostemerging market currencies. The Turkish lira brieflytumbled as far as 6.4700 per dollar at one stage.
Spot gold got a boost from the slide in yields, rising 1.2%to $1,544.83 per ounce and touching its highest sinceApril 2013.
Oil prices went the other way on worries the tariffs disputewould crimp world demand.
Brent crude futures slid 87 cents to $58.47, whileU.S. crude lost $1.02 to $53.15 a barrel.
(Reporting by Wayne Cole; Editing by Peter Cooney and SamHolmes)