* Asian stock markets : https://tmsnrt.rs/2zpUAr4
* Nikkei skids, China stocks struggle to bounce
* Beijing allows yuan to slip past 6.90 per dollar
* Yen up on safety bid as risk appetite sours
* Euro burdened by Italy budget fight, dollar supported by yields
By Wayne Cole
SYDNEY, Oct 9 (Reuters) - Asian shares hit 17-month lows on Tuesday as China allowed its currency to slip past a psychological bulwark amid sharp losses in domestic share markets, a shift that pressured other emerging currencies to depreciate to stay competitive.
The IMF added to the malaise by cutting forecasts of global growth for both this year and next, including downgrades to the outlook for the United States, China and Europe. sentiment is in a foul mood and stocks are sinking everywhere," said analysts at JPMorgan (NYSE:JPM) in a note.
"With Chinese economic momentum continuing to weaken alongside increasing pressure from the U.S., currency weakness is the obvious release valve," they warned. "A lurch through the 7.0 level by year end is possible."
China's central bank on Tuesday fixed its yuan at 6.9019 per dollar CNY=CFXS , so breaching the 6.9000 barrier and leading speculators to push the dollar up to 6.9320 in the spot market.
The drop should be a positive for exporters and did help Shanghai blue chips .CSI300 briefly edge up 0.1 percent in early trade before trading almost flat. Yet that follows a 4.3 percent slide on Monday which was the largest daily drop since early 2016.
MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS eased another 0.2 percent after ending Monday at its lowest point since May last year.
Japan's Nikkei .N225 fell 1.2 percent, hurt in part by a rise in the safe-harbour yen.
On Monday, a senior U.S. Treasury official expressed concern at the fall in the yuan, adding that it was unclear whether Treasury Secretary Steven Mnuchin would meet with any Chinese officials this week. Wall Street, the tech-heavy Nasdaq had fallen for the third straight day on Monday and growth stocks were pressured by worries rising bond yields might ultimately hobble the economy.
The S&P 500 .SPX lost 0.04 percent and the Nasdaq Composite .IXIC 0.67 percent, while the Dow .DJI rose 0.15 percent as defensive stocks found buyers.
NO SAFETY NET
Yields on 10-year Treasury paper US10YT=RR held at 3.24 percent on Tuesday, near a seven-year top.
Treasuries have had a sort of safety net up to now as rising yields tend to dampen stocks and threaten the economic outlook, thus putting pressure on the Federal Reserve to go slow on policy tightening.
Yet recently the Fed has sounded so bullish on the economy and so hawkish on rates that the net has become frayed.
"The size and speed of the bearish bond impulse would suggest a collective shift in market thinking about the US growth prospects and policy projections," said Damien McColough, Westpac's head of rates strategy.
"The Fed's expected 2019 profile has moved from just below 2 hikes to 2.5 hikes being factored-in."
That shift has underpinned the dollar against a basket of currencies .DXY where it stood at 95.754, from a low of 93.814 just a couple of weeks ago.
The dollar had less luck on the safe-haven yen pulling back to 113.07 JPY= from a 114.54 peak last week.
The euro was undermined by political troubles in Italy and lapsed to $1.1490 EUR= , well off September's $1.1815 top.
Italy's borrowing costs have surged as a war of words between Rome and the European Union over the country's budget plans escalated. yield on Italian government 10-year bonds IT10YT=RR rose more than 20 basis points to 3.626 percent, the highest since February 2014, while Italy's FTSE MIB .FTMIB stock index fell to its weakest since April 2017.
Brazil's real currency hit a two-month high and stocks jumped after market-preferred presidential candidate Jair Bolsonaro's strong first-round win on Sunday. commodity markets, gold got only a marginal safety bid at $1,189.41 XAU= , having fallen 1.4 percent overnight.
Oil prices were little changed as more evidence emerged that crude exports from Iran are declining in the run-up to the reimposition of U.S. sanctions, while a hurricane moved across the Gulf of Mexico. O/R
Brent crude LCOc1 added 3 cents to $83.94 a barrel, while U.S. crude firmed 5 cents to $74.34 CLc1 .
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