(Adds U.S. market open, byline, dateline; previous LONDON)
* Wall Street falls on China tariffs but pares losses
* Dollar weakens vs yen, Swiss franc on trade tensions
* Oil skids on trade war fear, bounces on U.S. inventory
By Herbert Lash
NEW YORK, April 4 (Reuters) - The dollar weakened and globalstock markets fell on Wednesday after China retaliated in anescalating trade war with the United States, unnerving investorswho were reluctant to take positions in anything but the safestof assets.
Oil dropped to a two-week low as the speed with whichBeijing responded - 11 hours - to U.S. measures raised theprospect of a quickly spiraling trade war that could hurt theglobal economy and dent crude demand.
Gold hit a one-week high as the dollar dipped against theyen and Swiss franc, while prices of U.S. Treasury securitiesand German bunds gained on safe-haven buying.
Boeing and Caterpillar led a slide in big U.S. manufacturersand technology companies that bore the brunt of the deepeningU.S.-China trade spat, while Germany's exporter-heavy DAX indexfell more than its large European counterparts.
But stocks on Wall Street and in Europe pulled back frommore than 1 percent declines, paring a chunk of their losseswith the FTSE in London closing higher.
"The market is overreacting to this trade news," saidMichael Arone, chief investment strategist at State StreetGlobal Advisors in Boston.
"These tariffs won't be implemented for a little while. Itgives both sides time to negotiate, which I think is thestrategy for both the U.S. and China."
China's retaliation came after trading hours for Japan'sNikkei, which added 0.2 percent in thin volume, whileChinese blue chips ended down 0.2 percent.
MSCI's all-country world index of stockperformance in 47 countries shed 0.45 percent, cutting abouthalf earlier losses. The pan-European FTSEurofirst 300 indexof leading regional shares lost 0.43 percent.
The FTSE index closed up 0.05 percent, while the DAXclosed down 0.39 percent and France's CAC 40 indexfell 0.18 percent.
The Dow Jones Industrial Average fell 145.05 points,or 0.6 percent, to 23,888.31. The S&P 500 lost 8.86points, or 0.34 percent, to 2,605.59 and the Nasdaq Compositedropped 6.37 points, or 0.09 percent, to 6,934.92.
Shares of Boeing, the single largest U.S. exporter toChina, tumbled 2.6 percent. Caterpillar fell 1.67percent.
China and the United States are likely to hold prolongednegotiations on trade and lead investors to recognize equityfundamentals remain strong as the results of first-quartercorporate earnings will show in coming weeks, Arone said.
"My view is this is more trade poker than it is tradepolicy," he said.
The dollar index fell 0.15 percent, with the euroup 0.2 percent to $1.2293. The Japanese yen firmed0.05 percent versus the greenback at 106.58 per dollar.
Crude bounced off session lows after U.S. data showed aweekly decline in crude stocks, instead of the increase analystshad expected. U.S. crude was down 42 cents to $63.09 perbarrel and Brent slid 41 cents to $67.71.
Borrowing costs nudged lower in Europe even as the firstMarch reading on euro zone inflation, important data for marketsas the European Central Bank looks to wind down its massivemonetary stimulus, came in firm at 1.4 percent.
Benchmark 10-year notes last were little changedin price to yield 2.7826 percent. Germany's 10-year bundrose in price to yield 0.499 percent.
U.S. gold futures rose 0.13 percent at $1,339.10 anounce.
(Additional reporting by Wayne Cole in Sydney, Helen Reid andDhara Ranasinghe in LondonEditing by Louise Ireland and Chizu Nomiyama)
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