By Sinéad Carew

NEW YORK (Reuters) - Stocks around the world slid on Monday, along with bond yields, after U.S. President Donald Trump threatened to raise tariffs on China, triggering an investor exodus from risky assets.

But assets such as oil and currencies changed direction as the day wore on as investors were not convinced Trump would follow through with a threat made on Sunday to raise tariffs on $200 billion worth of Chinese goods this week.

All the same, investors reduced their risk exposure, with U.S. Treasury yields lower as investors favoured low-risk government bonds over stocks.

Oil futures edged higher in volatile trade as rising tensions between the United States and Iran buoyed prices, which earlier touched a one-month low due to the tweets from Trump.

In U.S. equities, the three major indexes fell after declines in Europe and China, where the Shanghai SE Composite had its biggest one-day percentage drop since February 2016.

U.S. indexes, however, pared their losses slightly by mid-afternoon.

"The news gave investors a chance to take profits off the table. Markets are comfortable with the idea that Trump is using this as a negotiation tactic to get a trade deal done," said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.

"Whether or not China will be able to meet the demands of the administration, that is questionable, but I think a trade agreement is on its way."

Fear about trade-war escalation was also balanced by a statement from China's foreign ministry on Monday that a delegation was still preparing to go to United States for trade talks.

"That's what's keeping markets from moving down further. People are realizing that if talks are still continuing there's a chance that this escalation can once again de-escalate," said Mona Mahajan, U.S. investment strategist, Allianz Global Investors, New York.

The Dow Jones Industrial Average fell 182.06 points, or 0.69%, to 26,322.89, the S&P 500 lost 22.77 points, or 0.77%, to 2,922.87 and the Nasdaq Composite dropped 73.45 points, or 0.9%, to 8,090.55.

The pan-European STOXX 600 index lost 0.88% and MSCI's gauge of stocks across the globe shed 0.84%. Japanese and London markets were both closed for holidays.

BONDS RISE WITH DOLLAR

Benchmark 10-year Treasury notes last rose 11/32 in price to yield 2.4926%, from 2.53% late on Friday.

In currency trading, the U.S. dollar was down very slightly after firming earlier in the session against most major currencies while investors turned to safe-haven currencies after the Trump tweets.

The dollar index fell 0.02%, with the euro up 0.04% to $1.1204.

The Japanese yen weakened 0.28% versus the greenback at 110.86 per dollar.

U.S. West Texas Intermediate (WTI) crude futures rose 62 cents to $62.56 a barrel, a 1.0 percent gain, by 2:00 p.m. EDT (1800 GMT). Brent crude futures rose 65 cents to $71.50 a barrel, a 0.9 percent gain.

"When you have a panic investors sell everything. After that the market discerns which ones deserve to be down. We're continuing to put pressure on Iran and that's continuing to put supply out of the Middle East under pressure," said Shawn Hackett, president at Hackett Financial Advisors in Boca Raton, Fla.

"Because of the reduction in supply out of Iran the U.S.-China trade issue isn't enough to overcome that bullish factor."

For a graphic on world FX rates in 2019, click: http://tmsnrt.rs/2egbfVh

(Additional reporting by Amy Caren Daniel and Sruthi Shankar in Bengaluru; Saqib Iqbal Ahmed, Richard Leong and Stephanie Kelly in New York, Saikat Chatterjee and Virginia Furness in London; Editing by Larry King and Dan Grebler)