(Adds U.S. market open, byline)
* China’s Hong Kong security law rattles markets
* Stocks slip, oil prices tumble more than 4%
* Graphic: World FX rates in 2020 tmsnrt.rs/2egbfVh
NEW YORK/LONDON, May 22 (Reuters) - Global equity markets edged lower on Friday as Beijing moved to impose a new security law on Hong Kong after last year’s pro-democracy unrest, further straining U.S.-China ties that cast a pall over recovery prospects and sent oil prices tumbling.
News that China also dropped its annual economic growth target for the first time added to concern about the fallout from the COVID-19 pandemic, boosting safe-havens such as U.S. Treasuries and the dollar.
China said it would impose new national security legislation on Hong Kong, leading U.S. President Donald Trump to warn that Washington would react “very strongly” against an attempt to gain more control over the former British colony.
Emerging market shares were hit hard by the latest salvo, falling -2.65%. But stocks in Europe and on Wall Street slid only a bit, also weighed down by investors eyeing a long weekend in the United States, the UK and elsewhere.
Tensions between the world’s two largest economies have risen in recent weeks, with Washington ramping up criticism of China over the origins of the pandemic.
“You have these doubts over China that is triggering this sell-off in oil, and it’s going to gain steam. If oil sells off, it’s hard to have a strong stock market,” said Ed Moya, senior market analyst at OANDA in New York.
Crude oil has rebounded the most of the major asset classes on hopes world economies would soon recover from coronavirus-induced business shutdowns, he said.
Oil is vulnerable because the rally was overdone, he said.
“There’s just too much uncertainty, and that’s going to likely keep on weighing on risk appetite,” Moya said.
MSCI’s all-country world stock index shed 0.77%, while the pan-European STOXX 600 index rose 0.02%.
On Wall Street, the Dow Jones Industrial Average fell 133.26 points, or 0.54%, to 24,340.86. The S&P 500 lost 10.66 points, or 0.36%, to 2,937.85 and the Nasdaq Composite dropped 24.14 points, or 0.26%, to 9,260.74.
Earlier in Asia, Hong Kong’s Hang Seng index 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 lost 2.7%; Japan’s Nikkei fell 0.8%.
Analysts said extensive central bank stimulus continues to underpin sentiment.
Japan’s central bank unveiled a lending program to channel nearly $280 billion to small businesses hit by the coronavirus. India slashed rates for a second time this year and in the minutes from its last meeting, the European Central Bank said it is ready to expand emergency bond purchases as early as June.
U.S. crude fell 3.69% to $32.67 per barrel and Brent was at $34.63, down 3.97% on the day.
The dollar index rose 0.39%, with the euro down 0.49% to $1.0895. The Japanese yen strengthened 0.11% versus the greenback at 107.51 per dollar.
Benchmark 10-year U.S. Treasury yields fell 2.4 basis points to 0.6526%. Spot gold added 0.4%.
Reporting by Dhara Ranasinghe; Editing by Jane Merriman, Kirsten Donovan, Chizu Nomiyama and Dan Grebler
Our Standards: The Thomson Reuters Trust Principles.