(Adds oil, gold settlement prices)
* Stocks slide on bearish earnings, economic data
* China talks stimulus, but economic damage already done
* Euro near 4-week high as Lagarde flags July rate hike
By Herbert Lash and Lawrence White
NEW YORK/LONDON, May 24 (Reuters) - Shares slid worldwide on Tuesday as supply chain woes and surging costs hurt corporate earnings and manufacturing output slowed, while Treasury yields dipped as the weakness in equities revived a safe-haven bid for U.S. government debt.
A two-day relief rally in equities ended as investors took note of profit margins being squeezed by supply issues worsened by the Ukraine war and soaring inflation that has forced consumers to cut discretionary spending.
U.S. and euro zone business activity slowed in May, with S&P Global attributing the decline in its U.S. Composite PMI Output to "elevated inflationary pressures, a further deterioration in supplier delivery times and weaker demand growth."
Higher costs from surging freight and raw material prices led Abercrombie & Fitch Co to say it will continue facing headwinds until at least year-end, a day after Snapchat parent Snap Inc said the U.S. economy had worsened faster than expected in April.
The economy likely will slow very hard as the Federal Reserve hikes interest rates to stamp out inflation, said David Petrosinelli, senior trader at InspereX.
"It's really all about a hard landing and the Fed really being boxed in the corner with only demand-side tools to help," he said. "They really need to squash demand."
MSCI's gauge of stocks across the globe shed 1.46%, while the pan-European STOXX 600 index closed down 1.14%.
On Wall Street, the Dow Jones Industrial Average fell 0.63%, the Nasdaq Composite dropped 3.24% and the S&P 500 lost 1.67% as it again headed toward a bear market.
Value shares fell 0.63%, or much less than the 2.81% decline in growth stocks.
Shares of Snap plummeted 42.4%, dragging down several social media and internet stocks, while Abercrombie fell 30.8%.
In Europe, all major sectors posted broad declines, with luxury stocks and retailers taking the lead as disposable income of consumers is squeezed.
European Central Bank Chief Christine Lagarde said she saw the ECB's deposit rate at zero or "slightly above" by the end of September, implying an increase of at least 50 basis points from its current level as the bank also prepares to fight inflation.
"It has raised jitters in global markets about the possibility at least of a more aggressive move by the ECB," said Phil Shaw, chief economist at Investec in London.
"There were reports overnight that some hawks on the governing council thought her comments yesterday seemed to rule out a 50-basis-point hike, but her remarks today appeared to leave that on the table," he said.
Germany's 10-year Bund yield fell 9 basis points to 0.959%.
Treasury yields fell to one-month lows as those on benchmark 10-year Treasury notes slid 10.3 basis points to 2.756%.
The dollar index fell 0.264%, with the euro up 0.29% to $1.072.
Lagarde's comments in a blog post on Monday and a swing that drove the U.S. currency to two-decade highs reinforced tactical weakness in the dollar, said Bipan Rai, North America head of FX Strategy at CIBC Capital Markets.
"The broader macro backdrop still supports the risk-off take," Rai said. "The dollar still has more room to run over the medium term."
Markets took some comfort from U.S. President Joe Biden's comment on Monday that he was considering easing tariffs on China, and from Beijing's continuing promises of stimulus.
Yet China's zero-COVID-19 policy and its lockdowns have already done considerable economic damage.
JPMorgan cut its forecast for second-quarter Chinese gross domestic product to a 5.4% contraction from a prior 1.5% decline after disappointing data in April. On an annualized basis, its global forecast for the quarter is 0.6%, the weakest since the global financial crisis outside of 2020.
Oil prices traded little changed as tight supply worries offset concerns over a possible recession and China's COVID-19 curbs.
U.S. crude futures settled down 52 cents at $109.77 a barrel, and Brent rose 14 cents to settle at $113.56.
Gold prices rose to their highest level in two weeks as the safe-haven metal's appeal was lifted by a weaker U.S. dollar and lower Treasury yields, amid subdued risk appetite in financial markets.
U.S. gold futures settled up nearly 1% at $1,865.40 an ounce.
(Reporting by Herbert Lash in New York and Lawrence White in London; additional reporting by Wayne Cole in Sydney; editing by Simon Cameron-Moore, Jonathan Oatis and Tomasz Janowski)