Dollar reigns as investors fear recession pain



* Oil, Europe equity futures steady after steep drop

* Euro huddles at 20-yr low; sterling squeezed

* China stocks slip on fresh Shanghai virus outbreak

By Sam Byford and Tom Westbrook

TOKYO/SINGAPORE, July 6 (Reuters) - Asian stocks fell and the dollar stood by a two-decade high on the euro on Wednesday as investors' fears deepened that the continent is leading the world into recession, while oil and European equity futures made a wobbly attempt to steady.

Brent crude futures LCOc1 have slid this month on worries that a global slowdown will sap demand. Prices slumped 9.5% to a 2-1/2 month low of $101.10 on Tuesday, before bouncing slightly to $103.86 a barrel in the Asia session on Wednesday.

MSCI's index of Asia-Pacific stocks outside Japan .MIAPJ0000PUS fell 1%, led by a 2% drop for Taiwan's benchmark index .TWII - heavy with growth-sensitive computer chip makers - which hit an 18-month low. Japan's Nikkei .N225 fell 1.1%.

S&P 500 futures ESc1 fell 0.1% while FTSE futures FFIc1 and EuroSTOXX 50 futures STXEc1 rose 1% after heavy Tuesday selling.

News has been relentlessly negative, with talk of gas rationing in Europe, a political crisis in Britain and a fresh flare up of COVID-19 cases prompting fresh restrictions in Shanghai.

In the United States, the two-year Treasury yield has dropped below the 10-year yield US2US10=TWEB , a reliable market signal of a recession capping growth in the medium term.

"The drumbeat is getting louder and louder about recession risk," said Jason Teh, chief investment officer at Vertium Asset Management in Sydney.

"Right now defence is the name of the game. It's the best strategy right now, because in a recession a lot of things can fall out of bed."

Accordingly ,the dollar has been king and a safety bid has even returned to the beaten-down Japanese yen. The U.S. dollar index =USD hit a 20-year high of 106.79 on Tuesday, hoisted by a tumbling euro.

The index hovered at 106.440 on Wednesday and the yen JPY=EBS rose about 0.4% to 135.39 per dollar.

The euro EUR=EBS huddled at $1.0266 after dropping as far as $1.0236 on Tuesday and traders expect little respite. Selling could follow if Eurozone retail sales figures due at 0900 GMT disappoint expectations for a 0.4% monthly rise in May.

"There are no important support levels for EUR/USD until $1," said Commonwealth Bank of Australia strategist Kristina Clifton.

Sterling GBP=D3 was near a two-year low at $1.1944 after the resignation of two of Britain's top government ministers put Prime Minster Boris Johnson's leadership under new pressure.

GAS GAS GAS

Uncertainty over Europe's gas supply is leading the latest round of worries, and has sent prices rocketing against slumps in other commodities on growth worries.

Benchmark Dutch gas prices TRNLTTFMc1 have doubled since the middle of June.

Some investors worry that flow along the Nord Stream pipeline, which brings gas from Russia to Germany, might not resume after a ten-day maintenance shutdown from July 11 and that winter supply shortages will then prompt rationing and a sharp drop in economic activity.

The backdrop is rising interest rates.

The Federal Reserve publishes minutes later on Wednesday from the June meeting, where it announced the sharpest hike in the U.S. benchmark interest rate in nearly 30 years. It is likely to foreshadow more hikes as Fed officials have said their top priority is fighting inflation, even at the cost of growth.

"The probability of a soft landing had massively declined," August Hatecke, the co-head of UBS Wealth Management Asia Pacific told investors at a conference in Singapore. The growth-sensitive Australian dollar AUD=D3 was stuck near a two-year low at $0.6805.

Spot gold XAU= was last steady at $1,771 an ounce after sliding on the strong dollar overnight. The safe haven is down about 3% this year, less than the steep losses for equities and bonds.

Treasuries were steady in Asia with the 10-year yield US10YT=RR at 2.8327% and the two-year yield US2YT=RR at 2.8385%. Bitcoin BTC=BTSP , which has been demolished in the flight from risky assets, sat at $20,115.



World FX rates YTD Link
Global asset performance Link



Reporting by Sam Byford; Editing by Sam Holmes and Kim
Coghill



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