(Updates price levels, adds new Trump trade comments)

By Winni Zhou and Noah Sin

SHANGHAI/HONG KONG, Aug 26 (Reuters) - China's yuan fell to an 11-year low against the dollar on Monday and stocks dropped as the Sino-U.S. trade war sharply escalated, threatening to inflict more damage on the world's largest economies.

Share prices also tumbled in Hong Kong as trade tensions mounted and after a weekend flare-up in violence during anti-government protests.

The onshore yuan slumped as much as 0.7% in the first few minutes of trading to 7.15 per dollar, its weakest since February 2008 and its second biggest one-day drop of the month. The offshore yuan fell to a record low of 7.1850.

But the currency later pared losses after U.S. President Donald Trump said on Monday he believed Beijing wanted to make a trade deal. Trump said China had contacted U.S. trade officials overnight to say it wanted to return to the negotiating table.

The Chinese authorities have allowed the tightly-managed yuan to slide some 3.6% so far this month as trade tensions between Beijing and Washington have worsened, sparking fears of a global currency war. It was trading around 7.1456 by 0745 GMT.

The benchmark CSI300 Index ended down 1.4% while the Shanghai Composite Index fell about 1.2%, with Trump's comments hitting trading screens just before the close. Chinese 10-year Treasury futures rallied 0.3% in early trade on Monday but eased later in the day.

On Friday, Trump announced an additional duty on some $550 billion of targeted Chinese goods, hours after China unveiled retaliatory tariffs on $75 billion worth of U.S. goods.

"This tit-for-tat escalation shows how unlikely a trade deal and de-escalation have become," Louis Kuijs, of Oxford Economics, wrote in a note late on Sunday.

"The impact of the new tariffs on China’s economic growth will be sizeable," he said.

Oxford now expects China's economic growth could fall significantly below 6% next year, even assuming more policy support measures.

Capital Economics said the impact of U.S. tariffs on China's economy was starting to add up.

"With the drag on GDP growth set to rise to nearly one percentage point before long, it is significant enough to warrant looser monetary policy and a weaker exchange rate," it said in a note to clients.

Earlier on Monday, Chinese Vice Premier Liu He, Beijing's lead negotiator in the trade talks, helped take some of the edge off market jitters when he told a conference that China is willing to resolve the trade dispute through "calm" negotiations and resolutely opposes the escalation of the conflict.