Worries about a US-led trade war put world stocks at risk of their first two day loss of the year on Thursday, while bond markets bounced as China poured cold water on reports that it might stop buying US debt.

Europe's main bourses dipped in and out of the red and MSCI's world index was down 0.2 per cent after Asian and emerging market indexes had been pulled lower by warnings from Canada and Mexico that NAFTA's days could be numbered.

Bitcoin also took a major beating , falling as much as 11 per cent as South Korea - one of the crytocurrency's biggest markets - said it was drawing up laws to ban trading in it.

Benchmark government bonds bounced though after China's regulator said a Bloomberg report that it was considering slowing or halting its US bond purchases, was possibly “fake news". It also helped the dollar to its fourth gain in the last five days against a basket of top world currencies , having suffered one of its worst years on record in 2017.

Against the yen, it added 0.4 per cent to 111.83, after hitting a six-week low of 111.27 yen in the previous session when it skidded 1.1 per cent, its largest decline in almost eight months.

“The denial of the China story puts the dollar back where it was though the yen is still strong, so to me that is the interesting move and whether that is going to stick,” said Saxo Bank's head of FX strategy John Hardy.

“The 2.5 per cent level on the Treasury is a line in the sand so US CPI (inflation) data tomorrow is going to be absolutely critical,” he added, talking about the view that higher inflation will encourage more US interest rate hikes.

US 10-year Treasury yields - which move inverse to prices and are one of the main drivers of global borrowing costs - pulled back to 2.544 per cent from Wednesday's ten-month high of 2.597 per cent. Euro zone bond yields eased 1-3 basis points (bps) too, with Germany's 10-year Bund yield 3 bps off a two-month high at 0.46 per cent.

Minutes of ECB meet

The European Central Bank releases the minutes from its December meeting later in the day but there was also some relief from Japan, another source of pain for bond markets this week.

The Bank of Japan (BOJ) maintained the amount of its bond purchases on Thursday. A cut in its buying of longer-dated debt earlier this week had fanned worries the BOJ may be moving to turn off its stimulus.

Canadian dollar, Mexican peso weak

Canada's dollar and Mexico's peso remained firmly in the doldrums due to worries about the North American Free Trade Agreement which the two countries hold with the United States.

Sources in Canada's government told Reuters on Wednesday that they were increasingly convinced Donald Trump could announce he is quitting the pact. Sources in Mexico then said it would also abandon ship if the US did so.

The euro traded at $1.1945, nearly flat on the day, and holding above Tuesday's low of $1.1916. There was more upbeat data for the shared currency though. German economy grew at the strongest rate in six years last year a preliminary estimate from the country's statistics office showed, although it was slightly under some peoples' forecasts.

Commodity markets

Commodity markets meanwhile were taking something of a breather after a flying start to the year. Both Brent and US West Texas Intermediate (WTI) oil price futures were hovering just off three-year highs at just under $70 and $64 a barrel, while industrial metals dipped and gold ticked to $1,317.76 after spiking to nearly four-month highs in the previous session.

“In Q1, the balance of risk to Brent lies to the downside, with prices overheating, record net-length built into the futures market and fundamentals set to weaken seasonally,” BMI Research said in a note.

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