GLOBAL MARKETS-Dollar takes a dive, euro catapulted higher as U.S.-China talks start

* Stocks dither, euro jumps back above $1.10

* Mixed reports on U.S.-China trade negotiations

* Copper enjoys best day in a month

* Turkey assets under pressure after Syria incursion

LONDON, Oct 10 (Reuters) - A dive in the dollar catapulted the euro higher and flattened stocks on Thursday as the first U.S.-China trade talks since July and a report accusing the European Central Bank chief Mario Draghi of going rogue jostled for attention.

Markets were bombarded from all sides: denials and counter-denials on the state of U.S.-China trade talks and the Brexit countdown, a Turkish military push into Syria and a blizzard of weak data stretching from Japan to France.

Asia had managed a broadly positive finish but Europe's main bourses and Wall Street futures were left dithering as the more serious action took place in the currency markets.

The euro shot above $1.10 versus the dollar as the greenback turned weaker across the board - partly due to market chatter about a currency pact with China to stop devaluation - but there was plenty else too.

The Financial Times reported that the ECB had restarted its bond-buying program last month despite objections from its own officials, a further sign of how the move has reopened divisions within the institution. ECB meeting minutes then showed similar.

"The view on the currency story could be swinging here," said Saxo Bank's head of European currency strategy, John Hardy, "And the market is sensing that euro-dollar is the pressure point."

Perhaps the main mover overnight though was a rally in China's offshore yuan, which strengthened to its best levels in more than two weeks after a Bloomberg report said U.S. and Chinese officials were reviving a currency pact first mooted earlier this year that stops further tariff hikes in return for commitments to hold the yuan stable.

As well as the ECB resistance to Draghi's moves, that could also have a read-across for the euro, Saxo's Hardy said, with the United States expected to lay out sanctions next week in retaliation for Europe's past aid for planemaker Airbus.

U.S. President Donald Trump has repeatedly flagged how the euro has been weakened by extreme measures such as negative interest rates, so he may effectively issue a "cease and desist" along with the sanctions, Hardy said.

There also was the Brexit tangle. UK Prime Minister Boris Johnson was meeting his Irish counterpart in a last-ditch attempt to revive a British proposal for a deal that the EU said falls far short of what is needed.

"Big picture - the more severe that Brexit is, in the short term, it's likely to lead to a lower value of the pound, a higher level of inflation and slower growth in the economy," Bank of England chief Mark Carney told reporters.

'DIRE' TRADE SITUATION

S&P 500 mini futures traded down 0.2%, though losses had been trimmed by a New York Times report that Washington would soon issue licenses allowing some U.S. firms to supply non-sensitive goods to China's Huawei Technologies.

MSCI's broadest index of Asia-Pacific shares outside Japan had closed 0.1% higher while Japan's Nikkei rose 0.45%. Shanghai shares also rose 0.8%.

Top U.S. and Chinese negotiators were scheduled to meet in Washington on Thursday and Friday to try to end a bruising 15-month-old trade war.

Without significant progress, Trump is set to raise the tariff rate on $250 billion worth of Chinese goods to 30% from 25% next Tuesday.

"Barring any surprise today, it looks like their talks are breaking down. The tariff will be hiked. The situation looks dire," said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

China is unlikely to be willing to make an easy compromise with a U.S. president who seems increasingly vulnerable to domestic political pressure as opposition Democrats seek to impeach him, analysts said.

U.S. Democratic presidential contender Joe Biden called for the impeachment of Trump for the first time in a deepening partisan fight over a congressional investigation of the Republican president.

"Mr. Trump's recent impeachment risk has turned the timetable against him," Chi Lo, senior economist at BNP Paribas Asset in Hong Kong, wrote in a report to clients.

U.S. Treasuries yield went flat having risen to 1.594% on Wednesday, pressured partly by this week's heavy bond supply.

The 10-year Treasuries yield had dipped to 1.577% overnight, but had shuffled back up to 1.590 ahead of U.S. trading while all the ECB chatter also pushed euro zone yields slightly higher.

In commodities, oil prices also turned, with Brent bouncing between $52.82 and $58.23 a barrel and U.S. (WTI) crude at $52.50 per barrel. Copper strained for its best day in a month as it rose 1.1% to $5,749 a tonne.

Among the heavyweight emerging markets, Turkey's lira and government bonds saw another day of falls as investors fretted about negative international reaction to Ankara's military operation in northeast Syria.

Focus was also on the mood in Ecuador after another day of fierce protests against recent fuel price hikes had hammered its markets on Wednesday. (Reporting by Marc Jones; editing by Gareth Jones and David Clarke)

10/10/2019 12:46

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