GLOBAL MARKETS-COVID-19 surge sparks bond rally, stocks on worst run in 18 months

* U.S. indexes drop more than 1% in early trading

* Dollar rises broadly

* Oil prices fall 5% after OPEC+ resolves spat

* Government bond yields burrow lower amid COVID angst

By Jessica DiNapoli

NEW YORK, July 19 (Reuters) - Investors moved away from
risky assets on Monday as a rise in worldwide coronavirus cases
crushed bond yields and left stocks facing losing streaks, with
Wall Street falling more than 1%.

New COVID-19 cases rose in England and Asia, with U.S.
infections soaring 70% last week, dampening optimism on the
economic recovery. The 10-year yield fell 8.7 basis
points to 1.212%, a low last seen in February, while the S&P 500
fell for a third straight session.

"Investors shed risk assets in early morning trading amid
fears of a surge in COVID infections that have the potential to
curtail global growth," said Peter Essele, head of investment
management for Commonwealth Financial Network, in an e-mailed
statement. "The risk aversion was most pronounced in the 10-year
Treasury yield, which fell to its lowest level since the early
days of 2021.

"Fear of stagflation will be a major concern for investors
if a resurgence in COVID infections causes economies to slow
while consumer prices continue an upward trajectory," Essele
said.

The Dow Jones Industrial Average dropped more than 2%
mid-morning on Monday, with the S&P 500 falling 1.5%. The
Nasdaq Composite fell nearly 1%.

MSCI's all-country world index, a gauge of
global shares, was down 1.71%.

In a sign of the continued implications of the pandemic,
Britain's "freedom day," ending over a year of COVID-19 lockdown
restrictions in England, was marred on Monday by surging
infections, warnings of supermarket shortages and British Prime
Minister Boris Johnson's own forced self-isolation. Britain's
fully vaccinated health minister also contracted the virus.

U.S. deaths from the coronavirus, spurred by the dominant
Delta variant, are up 26%, with outbreaks occurring in parts of
the country with low vaccination rates. About one in five new
cases are in Florida.

"The big concern for the market is whether we are going to
see a slowdown in the global economic recovery, and this could
be the overriding force which results in a bad period for
equities in the weeks ahead," said Russ Mould, investment
director at brokerage AJ Bell.

On Wall Street, value stocks, including financials,
industrials, materials and energy
dropped between 2.1% and 4.2%.

Europe's STOXX 600 slid over 2% in its worst
session in seven months. London's FTSE fell a similar
amount to the lowest since mid-May.

Markets were fretting over whether broader lockdowns might
be needed again and a slowdown in China, the world's No. 2
economy, meaning a recent surge in commodity prices could be
peaking.

Natwest's Global Head of Desk Strategy John Briggs said
rising COVID-19 cases would focus markets on which countries had
the highest vaccination rates, their appetite for social
restrictions and their fiscal appetite.

"The U.S. comes out on top of all these," Briggs added. "We
are in a period of renewed U.S. exceptionalism... So all this is
bullish for the USD."

The greenback climbed to a more than three-month peak
against a basket of major currencies.

FOREVER CHANGED?

Oil prices, however, fell 5% as OPEC+ agreed to boost
output, causing concerns about a crude surplus. The
decline was the largest since late March.

Brent crude was down $3.61, or 4.9%, at $69.68 a
barrel. U.S. oil was down $3.75, or 5.2%, at $68.06 a
barrel.

Investors are also worried about the specter of elevated
inflation, which the market has long feared.

Economists at Bank of America downgraded their forecast for
U.S. economic growth this year to 6.5%, from 7% previously.

"Despite rising vaccination rates, a return to pre-Corona
normality seems questionable," Ulrich Leuchtmann, head of FX and
commodity research at Commerzbank, wrote in a research note.

(Reporting by Jessica DiNapoli in New York; additional
reporting by Marc Jones and Karin Strohecker; Editing by Edmund
Blair, Timothy Heritage and Dan Grebler)