GLOBAL MARKETS-Hong Kong tensions unnerve world stocks, oil tumbles

* China plan to impose new security law on HK rattles
markets
* Stocks down, off shore yuan hits 2-month low
* Oil prices tumble more than 4%
* Graphic: World FX rates in 2020 http://tmsnrt.rs/2egbfVh

(Updates throughout with reaction to HK news)
By Dhara Ranasinghe
LONDON, May 22 (Reuters) - World stocks took a hit and the
Chinese yuan weakened on Friday as Beijing moved to impose a new
security law on Hong Kong after last year's pro-democracy
unrest, further straining fast-deteriorating U.S.-China ties.
These tensions plus news that China has dropped its annual
growth target for the first time added to concern about the
fallout from the COVID-19 pandemic, knocking oil prices down
more than 4% LCOc1 and boosting safe-havens such as U.S.
Treasuries US10YT=RR .
European shares were broadly lower .STOXX .FTSE .FCHI
.GDAXI and U.S. stock futures pointed to a weak open on Wall
Street ESc1 1YMC1 .
That followed a sharp selloff in Asia after China said it
would impose new national security legislation on Hong Kong --
sparking a warning from U.S. President Donald Trump that
Washington would react "very strongly" against an attempt to
gain more control over the former British colony. Hong Kong's Hang Seng index .HSI slid more than 5% to a
seven-week low, its biggest daily percentage fall since 2015.
MSCI's broadest index of Asia-Pacific shares outside Japan
.MIAPJ0000PUS fell 2.7%, and Japan's Nikkei .N225 closed
down 0.8%.
U.S./China tensions have risen in recent weeks, with
Washington ramping up criticism of China over the origins of the
coronavirus pandemic.
"In the early stages of the recovery, the return of these
old uncertainties will challenge the optimism that we have seen
in world markets," said Nordea chief analyst Jan von Gerich.
"Maybe if the tension was just between Hong Kong and China,
the fallout might be limited, but we know this is also impacting
the U.S./China relationship."
Analysts noted that heavy central bank stimulus continued to
underpin sentiment -- MSCI's world stock index .MIWD00000PUS ,
is up around 2.6% this week and set for its best week since
early April.
Deutsche Bank strategist Jim Reid noted that it took more
than 3-1/2 years between September 2008 and 2012 to "achieve"
the $4.5 trillion cumulative expansion in G10 central bank
balance sheet assets seen over the last 12 weeks.
"Overall it's fascinating to see that markets are shaking
off the very bad news on the future U.S./China relationship much
more now in the face of a global pandemic than it did last year
when the tensions were fraught," he said.
"The relationship feels more in terminal decline now than it
did 6-12 months ago. Maybe the answer to this puzzle lies in the
central bank liquidity surge."
Japan's central bank on Friday unveiled a lending programme
to channel nearly $280 billion to small businesses hit by the
coronavirus. India slashed rates for a second time this year.

The souring in sentiment pushed China's yuan to a more than
8-1/2 month low in onshore markets. Offshore, the yuan weakened
to a two-month low at around 7.16 per dollar CNH=D3 .
While anticipated, the news that China has not set an
economic growth target for the first time since the government
began publishing such goals in 1990, added to a sense that the
coronavirus fallout is likely to be protracted. Brent crude LCOc1 fell more than 4% to $34.47 a barrel,
West Texas Intermediate (WTI) crude CLc1 dropped 5.6% to
$32.03. O/R
The euro tumbled 0.5% against a broadly stronger dollar to
$1.0893 EUR= ; the dollar index =USD rose 0.4% to 99.801.
Elsewhere, benchmark 10-year U.S. Treasury yields fell 4
basis points to 0.64% US10YT=RR .
Short-dated British bond yields fell GB2YT=RR further
below zero to new all-time lows, after data showed a record
collapse in retail sales and the Bank of England said more bond
purchases are "quite possible". <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Emerging markets http://tmsnrt.rs/2ihRugV
Hong Kong stocks suffer biggest one-day slide since 2015 https://tmsnrt.rs/3cTzvqp
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