*

S&P 500 futures drop 2.5%, set to confirm bear market

*

Europe falls, Stoxx 600 off 4%, once-loved defence down

5.8%

*

Futures price in extra 25bps Fed easing this year

*

Safe havens yen and Swiss franc gain

*

Oil dives 2% as global recession risks mount

By Wayne Cole and Alun John

SYDNEY/LONDON, April 7 (Reuters) - Major stock indexes

and U.S. share futures plunged on Monday, with the S&P 500

poised to confirm a bear market, and volatility gauges spiked as

U.S. President Donald Trump showed no sign of backing away from

his sweeping tariff plans.

Investors also bet the mounting risk of recession could see

the Federal Reserve cutting interest rates as early as May, and

futures markets moved swiftly to price in almost five

quarter-point cuts in U.S. rates this year, hurting the dollar

on safe havens.

The carnage came as Trump told reporters that investors

would have to take their "medicine" and he would not do a deal

with China until the U.S. trade deficit was sorted out.

"We're in the territory where this will be a named event

when people write about things in 10 or 20 years time," said Tim

Graf, head of macro strategy EMEA, State Street, adding that

last week's selloff was being exacerbated by two things.

"Things become reflexive - derisking leads to derisking -

and even though individual actors in markets think they are

doing the rational thing, when they all do the same thing at the

same time, it becomes irrational on the surface, a sort of

tragedy of the commons."

"And secondly there is an intransigence element that will

come to the fore because these guys (U.S. policymakers) don't

sound like they are going to change their minds."

Investors had thought the loss of trillions of dollars in

wealth and the likely body blow to the economy would make Trump

reconsider his plans.

"The size and disruptive impact of U.S. trade policies, if

sustained, would be sufficient to tip a still healthy U.S. and

global expansion into recession," said Bruce Kasman, head of

economics at JPMorgan, putting the risk of a downturn at 60%.

S&P 500 futures slid 2.6% in volatile trade, while

Nasdaq futures dropped 2.9%, both down less than in early

Asia trade but still suggesting sharp falls at the open on top

of last week's almost $6 trillion in market losses.

The VIX "fear index" of volatility also surged,

rising as high as 60 for the first time since August, and signs

of stress were also seen in credit markets.

The pain likewise engulfed European stocks, with the broad

Stoxx 600 down 4%, with recent market darlings particularly hurt

as investors were forced to sell what they owned.

Defence stocks tumbled 5.5%, while banks shed 4.5%

on the day and are down more than 20% from their recent closing

high, on course to confirm they are in a bear market.

In Asia, Hong Kong's Hang Seng's 13% one-day slump

was the largest since 1997, while in mainland China the

blue-chip CSI 300 index was down 7% only finding a

floor when state media reported China's sovereign fund Central

Huijin was a buyer.

The gloomier outlook for global growth kept oil prices under

heavy pressure, following steep losses last week.

Brent fell $1.46 to $64.12 a barrel, while U.S.

crude lost $1.60 to $60.43 per barrel.

NEVER MIND INFLATION

Growth fears caused Fed fund futures to price in an

extra quarter-point rate cut from the Federal Reserve this year,

and markets swung to imply around a 50% chance the Fed could cut

interest rates as soon as May.

That was despite chair Jerome Powell on Friday saying the

central bank was in no hurry to cut rates, though in a sign of a

possible conflict to come, Trump reiterated in a Monday social

media post his view that the Fed should cut rates.

Higher rate cut bets gave a boost to Treasuries in early

trade and the 10-year yield neared Friday's six-month low of

3.86%, though the move failed to hold and the benchmark was last

flat on the day at 3.992%.

The rebound brought the dollar off its early lows against

safe haven currencies, but it was still down 0.3% on the

Japanese yen at 146.4, and 0.6% on the Swiss franc at

0.8556.

The euro was steady at $1.1005, seemingly

benefiting from some nervousness about the dollar.

Investors were also betting that the imminent threat of

recession would outweigh the likely upward shove to inflation

from tariffs.

U.S. consumer price figures out later this week are expected

to show another rise of 0.3% for March, but analysts assume it

is just a matter of time before tariffs push prices sharply

higher, for everything from food to cars.

Rising costs will also put pressure on company profit

margins, just as the earnings season gets underway with some of

the big banks due on Friday. Around 87% of U.S. companies will

report between April 11 and May 9.

Analysts at Goldman Sachs said in a note they expect fewer

companies than usual to offer guidance about their results for

the second quarter or the year as a whole.

As well as inflation data, investors will be watching

scheduled U.S. government bond auctions. A poor outcome "will be

jumped on by investors" and would be negative for the dollar,

said ING.

Even gold was swept up in the selloff, easing 0.3% to

$3,026 an ounce.

The drop left dealers wondering if investors were taking

profits where they could cover losses and margin calls on other

assets, in what could turn into a self-feeding fire sale.

(Editing by Kim Coghill, Himani Sarkar, Shri Navaratnam and

Hugh Lawson)