* Trump steel, aluminum tariff plan raises trade war fears
* US debt yields fall as trade jitters dwarf inflation fear
* Trump tweets "trade wars are good, and easy to win"
By Herbert Lash
NEW YORK, March 2 (Reuters) - World equity markets slidfurther and the U.S. dollar dropped to its lowest in more thantwo years against the yen on Friday as concern over a globaltrade war added to investor uncertainties about rising inflationand the outlook for U.S. interest rates.
President Donald Trump's pledge on Thursday to impose heftytariffs on steel and aluminum imports raised the prospect of aglobal trade war that could prove damaging to a healthy U.S.economy that is poised to deliver record corporate earnings.
The rout in risk assets knocked the dollar from multi-weekhighs as the specter of protectionism spurred fear ofretaliation by other nations, which would be negative for thegreenback.
Major equity indices in Europe fell more than 2 percent, asthey were closed when Trump's tariff proposal was announced,while the Nikkei index .N225 fell 2.5 percent in Tokyo and theHang Seng index .HSI fell 1.5 percent in Hong Kong.
Asian steelmakers were hit hard, with South Korea's Posco 005490.KS down 3.3 percent and Japan's Nippon Steel 5401.T off 3.8 percent. Toyota Motor 7203.T shares slid 2.4 percentafter it said tariffs would substantially raise production costsand the price of cars and trucks sold in America. move could herald the tough actions on trade he hadpromised during the electoral campaign as a way to incentivizecompanies to just "buy American, hire American," said JohnDoyle, vice president of dealing and trading at Tempus Inc. inWashington.
"The U.S. dollar may face some scrutiny and as a resultstruggle to hold on to recent gains," Doyle said. "It is thetype of scenario that is unprecedented, thus wild swings mayoccur as this is digested and analyzed the next few days."
Volatility will continue until investors get some clarity onthe path of U.S. interest rates, inflation, global trade policyand the international response, said Michael Arone, chiefinvestment strategist at State Street Global Advisors in Boston.
"Investors do not like uncertain outcomes, they just don't,"Arone said. "If we could just eliminate some of this noise,there's a really healthy underlying stock market."
MSCI's gauge of stock performance in 47 countries .MIWD00000PUS fell 0.59 percent while the pan-EuropeanFTSEurofirst 300 index .FTEU3 of leading regional shares lost2.07 percent to close at a preliminary 1,438.01.
ArcelorMittal SA MT.AS , the world's biggest steelmaker,fell 3.7 percent while euro zone automakers and parts companies .SXAP fell 2.29 percent.
On Wall Street, the Dow Jones Industrial Average .DJI fell252.85 points, or 1.03 percent, to 24,356.13. The S&P 500 .SPX lost 7.59 points, or 0.28 percent, to 2,670.08 and the NasdaqComposite .IXIC dropped 1.31 points, or 0.02 percent, to7,179.25.
The dollar index .DXY fell 0.38 percent, with the euro EUR= up 0.42 percent to $1.2318. The Japanese yen JPY= firmed 0.68 percent versus the greenback at 105.55 per dollar.
The Mexican peso MXN= lost 0.22 percent to 18.87, whilethe Canadian dollar fell 0.35 percent versus the greenback at1.29.
Canada will retaliate against any U.S. tariffs on steel andaluminum products, officials said on Thursday.
U.S. Treasury yields rose, with the 10-year yield bouncingback from a three-week low as the Bank of Japan's chief hintedat a possible exit from its ultra-easy policies if inflationhits its target in its fiscal 2019.
Benchmark 10-year notes US10YT=RR fell 18/32 in price topush its yield up 2.8661 percent.
Oil fell for a third day and traded further below $65 abarrel as rising U.S. inventories, record output and a strongerdollar outweighed high compliance with the supply-cutting dealof the Organization of the Petroleum Exporting Countries.
U.S. crude CLcv1 rose 24 cents to $61.23 per barrel andBrent LCOcv1 gained 34 cents to $64.17 per barrel.
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