New York: Asian markets struggled on Tuesday, with Hong Kong briefly tumbling more than three percent, as investors fret over looming China-US trade tariffs that bring a potential trade war a step closer.
Dealers brushed off a late rally on Wall Street to continue a selling frenzy that has hammered equities across the globe, while high-yielding currencies are also under pressure against the dollar.
There are particular fears for Shanghai, which has plunged more than 20 percent from its January high as the colossal Chinese economy is already showing signs of slowing, even before Donald Trump's threatened tariffs kick in.
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The yuan extended losses and has fallen around eight percent since the end of March -- and is now at an 11-month low -- adding to fears about the mainland as leaders struggle to get a cap on a debt mountain while also supporting growth.
Analysts dismissed some claims that authorities are allowing the Chinese currency to weaken in order to offset the impact of any tariffs.
"We have already seen the impact on Chinese investors' anxiety over a weaker currency and subsequent capital outflow in 2015-16," said Tai Hui, JP Morgan Asset Management chief market strategist for Asia-Pacific. "This is not a can of worms that Beijing wants to open again."
In share trading Hong Kong sank more than three percent at one point as traders returned from a long weekend break to play catch up with the rest of Asia's retreat on Monday. The HSI then edged back to sit 2.4 percent lower.
Crude edged back
Shanghai shed 0.2 percent and Singapore lost 0.5 percent, while Tokyo ended the morning marginally lower after fluctuating through the morning.
Sydney added 0.5 percent, Seoul rose 0.3 percent and Wellington jumped more than one percent. Jakarta fell but Manila rose.
While the focus this week is mainly on the hundreds of billions worth of goods targeted by China-US tariffs, Trump has also taken aim at the European Union and Canada, which have both announced retaliatory measures, adding to global trade war warnings.
Oil prices edged up in Asia after taking a hit on Monday from a tweet by Trump at the weekend saying Saudi Arabia had agreed to his request to ramp up output.
Despite the possible increase in output, analysts said they saw prices continuing to rise.
"The market remains supported by a production outage in Libya and the overhang from recent US... data which suggest US supplies are running very tight," said Stephen Innes, head of Asia-Pacific trade at OANDA.
The euro held up against the dollar after German Chancellor Angela Merkel reached a compromise deal on immigration with her coalition partners, keeping her government intact for now and averting a crisis in Europe's biggest economy.
Key figures around 0300 GMT
Tokyo - Nikkei 225: FLAT at 21,805.73 (break)
Shanghai - Composite: DOWN 0.2 percent at 2,769.19
Hong Kong - Hang Seng: 2.4 percent at 28,263.00
Euro/dollar: DOWN at $1.1633 from $1.1642 at 2100 GMT
Pound/dollar: DOWN at $1.3132 from $1.3143
Dollar/yen: UP at 111.07 yen from 110.86 yen
Oil - West Texas Intermediate: UP 68 cents at $74.62 per barrel
Oil - Brent Crude: UP 69 cents at $77.99 per barrel
New York - Dow: UP 0.2 percent at 24,307.18 (close)
London - FTSE 100: DOWN 1.2 percent at 7,547.85 (close)