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Treasury yields elevated, U.S. stock futures down 0.6%

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Tax-cut bill fuels further federal deficit concerns

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Japanese bonds in focus after steep selloff on Tuesday

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Oil prices up on report of Israel preparing strike on Iran

(Recasts, updates for 1030 GMT)

By Lawrence White

LONDON, May 21 (Reuters) -

Stocks fell, Treasury yields rose and the dollar came under

pressure on Wednesday, as investors sold U.S. assets over

growing concerns about President Donald Trump's efforts to ram

through a tax-cutting bill.

Oil prices also rose more than 1% after CNN reported that

Israel was preparing a strike on Iranian nuclear facilities,

raising supply concerns out of the key Middle East producing

region and bringing geopolitical worries back into focus.

Investor sentiment has been fragile since Moody's last week

downgraded the United States' credit rating, stoking concerns

about the country's $36 trillion debt pile, with Trump pushing

for tax cuts that could worsen the debt load by $3 trillion to

$5 trillion.

U.S. stock index futures dipped nearly 1% in

European trading hours on Wednesday as Trump tried to muster

more support from Republicans who object to parts of his bill,

which would reduce health and food benefits for low-income

Americans and cut green-energy programs among other measures.

There are also concerns about a lack of progress on U.S.

trade talks with trading partners pressing Washington to ease or

eliminate its tariffs.

Treasury yields have stayed elevated, with the yield on

30-year Treasury bonds hitting 5%, ahead of a key

auction later on Wednesday of $16 billion of 20-year notes which

will act as a measure of demand for longer-term U.S. debt.

European stocks also retreated from recent highs, with

the pan-European STOXX 600 down 0.5%, led by falls in

British sportswear retailer JD Sports and Swiss bank

Julius Baer.

Investors, meanwhile, flocked to safe-haven currencies

including the yen and Swiss franc.

"People are looking at the idea of moving capital out of the

U.S. and it's certainly not a mass exodus, but people are

looking at the opportunities in some of these other markets

again," said Chris Weston, head of research at Pepperstone.

Investors sought those opportunities in Asia, with MSCI's

broadest index of the region outside Japan up

0.8% at a seven-month high.

In currencies, dollar selling accelerated in Asia, driving

the yen, Swiss franc and the euro

to their strongest levels in two weeks.

The pound touched a three-week high and last bought

$1.3407. British inflation jumped to a higher-than-expected

annual rate of 3.5% in April from 2.6% in March.

JAPANESE BOND JITTERS

Markets were also monitoring the Group of Seven finance

ministers' meetings currently underway in Canada for any hints

that a weaker dollar could help advance trade negotiations.

Investors in the Japanese bond market remained jittery after

a steep selloff in super-long bonds in the previous session.

Yields on longer-dated bonds hovered near record highs on

Wednesday, with questions over how the country could fund new

fiscal stimulus, with the central bank trying to normalise

monetary policy.

Data on Wednesday showed Japanese shipments to the U.S. fell

in April even as exports rose for the seventh straight month,

highlighting the toll Trump's tariffs could take on the fragile

economic recovery in Japan.

Analysts said any progress on deals between the U.S. and its

trade partners could fuel risk appetite, but there are concerns

Trump's policies could still damage the global economy.

On Tuesday, U.S. Federal Reserve officials said prices were

rising on the back of higher U.S. import tariffs and counselled

patience before making any interest rate decisions.

Gold prices rose on Wednesday as the dollar weakened and

investors flocked to safe-haven assets. Spot gold was

0.7% at $3,311 per ounce, the highest in more than a week.