European shares close down, Wall Street falls on earnings anxiety

(New throughout with updated comment, prices)

* Nasdaq drops 3% as investors await earnings

* World, European shares give back earlier gains

* China stocks fall further as Beijing races to battle COVID

* Dollar hits fresh 2-year peak on China COVID fears, Fed bets

* Graphic: Global asset performance Link

* Graphic: World FX rates Link

By Chris Prentice and Danilo Masoni

WASHINGTON/MILAN, April 26 (Reuters) - U.S. shares fell on Tuesday and European stocks extended losses for a third session as investors warily awaited U.S. tech earnings and worries over global growth lingered.

China's COVID-19 curbs and fears of aggressive U.S. Federal Reserve tightening continued to damp risk appetite and lifted the dollar to new two-year highs.

Oil prices rebounded in volatile trading and gold prices rose on safe-haven buying.

The tech-heavy Nasdaq led Wall Street lower. The Dow Jones Industrial Average .DJI fell 621.54 points, or 1.83%, to 33,427.92, the S&P 500 .SPX lost 90.36 points, or 2.10%, to 4,205.76 and the Nasdaq Composite .IXIC dropped 403.47 points, or 3.1%, to 12,601.38 by 2:05 p.m. EDT (1805 GMT).

The MSCI world equity index .MIWD00000PUS fell 10.93 points, or 1.63%, to 657.68.

"There's a lot of anxiety ahead of the earnings which are coming up Tuesday, Wednesday and Thursday just because if they don't hold up, then there's nothing left to hold up the market," said Thomas Hayes, chairman of Great Hill Capital LLC in New York.

The pan-Europe STOXX 600 index .STOXX closed lower, with technology stocks .SX8P down 2.3% at six-week lows and banks .SX7P dropping 2.3%. The index had rallied up to 1% earlier in the session amid strong earnings from companies including Swiss bank UBS UBSG.S and shipping giant Maersk MAERSKb.CO

China's blue-chip index .CSI300 fell another 0.8% after its worst day in two years on Monday, even as the central bank vowed to step up prudent monetary policy support, particularly for small firms hit by COVID-19.

Three-fourths of Beijing's 22 million people lined up for COVID-19 tests as the Chinese capital raced to stamp out a nascent outbreak and avert the city-wide lockdown that debilitated Shanghai for a month.

"There's a little bit of a growth scare coming in but in our view there won't be an immediate slowdown to growth or inflation," said Mike Kelly, head of global multi-asset at PineBridge Investments.

"We saw that European services PMI surprised to the upside and China, despite moving dreadfully slowly on stimulus, is still moving in the direction to try to speed things up," he added.

But Manishi Raychaudhuri, Asia-Pacific equity strategist at BNP Paribas, said if Chinese lockdowns persisted, it would affect China's economy significantly, with an impact on global supply chains.

Hong Kong's tech sector .HSTECH rallied 2.9%, boosted by large firms such as Tencent 0700.HK and Alibaba BABA.N .

News that Elon Musk had clinched a deal to buy Twitter TWTR.N for $44 billion in cash buoyed tech stocks on Monday. U.S. shares had rallied in late trading on Monday after trading lower throughout much of the session. Shares of the social media platform were down 3.59% on Tuesday.

"Outside of that late story it was hard to find a narrative for the strong rebound. Tech stocks will stay front-and-center" as earnings progress this week, Deutsche Bank Research analysts said in a note. Investors also eyed the Federal Reserve meeting next week. Markets have been fretting that an aggressive pace of tightening by the Fed could derail the global economy, which has only just started to recover from the pandemic.

The Fed is expected to raise rates by a half a percentage point at each of its next two meetings.

"It is unrealistic to think that the U.S. can raise interest rates in this way without looking at the real economy," said Carlo Franchini, head of institutional clients at Banca Ifigest, adding he was also worried about hawkish signals in Europe.

The European Central Bank's Martins Kazaks joined a chorus of policymakers urging a swift exit from stimulus measures, suggesting the bank should raise rates soon, and has room for up to three hikes this year.

"A rate hike right now would be madness. ... It would just squeeze demand further, reducing consumption and drive the economy into stagflation, which in my view is a much more likely scenario than you might think," Franchini added.

The ECB will next meet on June 9 where policymakers are expected to put a firm end date on bond buys and provide clearer guidance on interest rates.

U.S. Treasury yields slipped on Tuesday as uncertainties surrounding the war in Ukraine and the Fed's efforts to bring down inflation kept investors cautious about the future despite better-than-expected economic data.

The yield on benchmark 10-year Treasury notes US10YT=RR fell to 2.7587%.

Germany's 10-year yields DE10YT=RR , the benchmark of the euro bloc, also fell, trading at 0.802%, after falling more than 11 basis points the day before.

In currency markets, the dollar =USD rose 0.6% against a basket of rivals to a fresh two-year high.

China's offshore yuan CNH= fell against the dollar, but stayed above Monday's year-low of 6.6090 after the People's Bank of China said it would cut the amount of foreign exchange banks must hold as reserves.

Oil prices rebounded on China's plans to support its economy. Brent LCOc1 crude rose 3.18%, while U.S. crude CLc1 added 3.68%.

Spot gold XAU= edged up 0.14% as investors sought safe-haven assets. Gold futures settled up 0.43% at $1,901.40 ounce. Palladium prices XPD= rose 1.08% after Monday's steep decline on Chinese demand worries.

World FX rates YTD Link
Global asset performance Link
Asian stock markets Link

Reporting by Chris Prentice in Washington, Danilo Masoni in
Milan and Xie Yu in Hong Kong; additional reporting by Bansari
Mayur Kamdar and Sujata Rao in London; Editing by Clarence
Fernandez, Mark Potter, Jonathan Oatis and Andrea Ricci

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