* U.S. 10-year T-bill yields down 3.5 basis points * Reflation trade “shocked but not dead” * U.S. stocks down around 1% (Updates with mid-afternoon prices) NEW YORK, July 8 (Reuters) - U.S. stock prices fell while bond prices and the euro firmed on Thursday as investors trimmed risk and fled to safety amid a cloudier outlook for the pace of economic recovery. Markets had come off of their more extreme early moves by mid-afternoon in U.S. trading, but remained lower. Worries about knock-on effects of Beijing’s crackdown on foreign-listed Chinese firms also weighed on equities. Bonds, meanwhile, rallied strongly as investors factored in a lower-for-longer interest rate scenario, easing expectations that reflating economies would force rates to rise through the second half of the year. “The reflation trade is shocked but not dead,” said Jim Vogel, interest rate strategist at FHN Financial in Memphis, since rates will eventually have to rise. “People have been persistently too optimistic because the first four months of year were just gang-busters good,” he said. Investor optimism about the pace of recovery is being tempered after months spent overlooking some bearish economic signals. Unusual items that boosted core U.S. inflation data last month, for example, may have made inflation and growth appear more robust than it was. Around 1900 GMT, the Dow Jones Industrial Average was down 360.91 points, or 1.04%, to 34,320.88. The broad S&P 500 lost 41.57 points, or 0.95% to 4,316.56. The tech-focused Nasdaq Composite dropped 105.30 points, or 0.72%, to 14,559.76. The yield on 10-year Treasury notes was down 3.5 basis points to 1.286%. It fell as low as 1.2496% earlier in the day. Also raising concerns: political tensions in the Middle East, Russia and China that can distract the Biden administration from its domestic agenda, and lessen the focus on policies such as the infrastructure bill. Also, debate about raising the U.S. debt ceiling looms not far ahead. Meanwhile, a reading on Thursday on the number of Americans filing new unemployment claims provided another indication that the job market recovery from the COVID-19 pandemic continues to be choppy. The U.S. Federal Reserve on Wednesday dispelled fears of an imminent monetary policy tightening, but confirmed views that such talk could begin next month. Shares in Europe fell about 1.8%. The dollar index, which tracks the greenback versus a basket of six currencies, was down 0.22% at 92.436. The euro was last up 0.41%, at $1.1837. Spot gold prices fell $4.375 or 0.24%, to $1,799.03 an ounce. Brent crude was last up $0.82, or 1.12%, at $74.25 a barrel. U.S. crude was last up $0.87, or 1.2%, at $73.07 per barrel. Additional reporting by Simon Jessop, Tom Westbrook, Yoruk Bahceli and Brenna Hughes-Neghaiwi; editing by Kirsten Donovan, Angus MacSwan, Barbara Lewis, William Maclean and Sonya Hepinstall Our Standards: The Thomson Reuters Trust Principles.