By Shen Hong and Steven Russolillo 

-- U.S., China make fresh threats before turning conciliatory

-- European stocks post declines on light trading volumes

-- U.S. yield curve inverts again as two-year rate slips below 10-year

Global stocks and government bond yields fell on Monday as a fresh escalation in the U.S. trade war with China, followed by conciliatory moves over the weekend, cast fresh doubt on growth prospects.

China's Shanghai Composite Index shed 1.1%. On Friday, the world's second-largest economy said it would impose retaliatory tariffs on additional U.S. products, prompting Mr. Trump to say he would retaliate by lifting levies on Chinese goods. The news helped send bond yields, U.S. stocks, and commodity prices lower at the end of last week, while a widely watched gauge of volatility rose.

Mr. Trump also said American companies were "hereby ordered" to look for alternatives to China -- although aides said over the weekend he had no plans to force businesses to relocate.

On Monday, investors' concerns about the impact on global trade played out in the markets.

U.S. futures tied to the S&P, which were briefly negative on Monday, turned positive after Mr. Trump said China had called U.S. trade officials and asked to " get back to the table" for talks.

Investors are losing faith in how both sides are approaching the trade war and whether a resolution could be reached soon, according to Peter Atwater, a research analyst and adjunct lecturer at William & Mary in Williamsburg, Va.

"Confidence requires perceptions of certainty and control," he said. "Stock investors now have neither."

In Europe, the Stoxx Europe 600 index declined 0.3% amid low trading volumes around the region as the U.K.'s exchanges remained closed for a bank holiday. The French CAC 40 was almost unchanged, while the German DAX slipped 0.2%.

Meanwhile, Hong Kong's Hang Seng fell almost 2%, as pro-democracy protests turned violent after nearly two weeks of relative calm.

Separately, China's currency weakened to a multiyear low, weeks after Beijing first allowed it to trade beyond the symbolic level of 7 yuan per dollar. The currency is both a flashpoint in relations with the U.S., and a means for China to make its exports more competitive, helping offset the impact of U.S. import tariffs.

Zhang Gang, a Shanghai-based senior analyst at Central China Securities, said mainland investors have become less sensitive to trade war news this year, and were also expecting more easing from the People's Bank of China to offset an economic slowdown.

The onshore yuan dropped by 0.7% to 7.1466 against the greenback, its weakest since February 2008. The more freely traded offshore yuan dropped to as low as 7.1858 per dollar, marking a weak point in the nine years since Beijing has allowed the currency to trade in Hong Kong and elsewhere outside mainland China.

Prices for U.S. government debt rose as investors sought haven assets. The yields on the 10-year U.S. Treasury and the two-year bond inverted again, with the two-year yielding 1.453% and the 10-Year at 1.449%, according to Tradeweb. In the past, this has been a signal of a recession. That put the 10-year note's yield within 0.1 percentage point of the record closing low it registered in 2016.

Sovereign bonds from Australia, South Korea and Japan rallied as well, and gold prices rose 0.1%.

Later in the day, investors will be watching for July durable-goods figures from the U.S. Commerce Department. Last month, orders for manufactured products intended to last at least three years rose 2% from the previous month. Economists surveyed by The Wall Street Journal forecast durable-goods orders increased 1.1% in July from a month earlier.

--Caitlin Ostroff contributed to this article.

Write to Shen Hong at hong.shen@wsj.com and Steven Russolillo at steven.russolillo@wsj.com

(END) Dow Jones Newswires

August 26, 2019 05:02 ET (09:02 GMT)