Asian stocks fragile as trade tensions escalate

By Tomo Uetake

TOKYO (Reuters) - Asian shares came under pressure on Tuesday after Wall Street peers finished weaker, hurt by fresh worries about the U.S.-China trade war and were on track for their biggest October decline since the 2008 financial crisis.

MSCI's broadest index of Asia-Pacific shares outside Japan slid 0.1 percent, tracking falls in U.S. stocks. The index has fallen more than 12 percent this month.

Japan's Nikkei average <.N225> rose 0.9 percent and the Australian benchmark <.AXJO> shed 0.2 percent in early morning trade.

Major U.S. indices fell steeply in volatile trade after a Bloomberg report that the United States is preparing to announce tariffs on all remaining Chinese imports by early December if talks next month between presidents Donald Trump and Xi Jinping falter. [nL2N1X9232]

The CBOE Global Markets volatility index <.VIX>, known as Wall Street's "fear gauge", jumped to as high as 27.86 points, its highest since Oct. 11 and the second highest since volatility shock in early February.

"The probability of global stocks turning to a bear market is increasing," said Masanari Takada, cross-assets strategist at Nomura Securities.

"While some investors who look at fundamentals buy stocks on dips, there are other players who keep selling automatically in response to heightened volatility. Buyers will be overwhelmed if we have negative headlines on tariffs at time like this."

China's major stock indices fell sharply on Monday as earnings reports from industrial and consumer firms raised concerns about the slowdown in economic growth and the impact of policy support so far.

The Shanghai Composite Index <.SSEC> shed 2.2 percent to finish at 2,542, well below the key 2,600 points while the blue-chip CSI300 index <.CSI300> closed 3.0 percent lower. [nL3N1X93CB]

China's yuan closed at its weakest in over a decade on Monday, losing 0.16 percent to end the domestic session at 6.9560 per dollar , stirring speculation over whether the central bank will tolerate a slide beyond the key level of 7 per dollar.

Prior to the spot market's open, the offshore yuan was little changed at 6.9730 after falling on Friday to as low as 6.9760 to the dollar, its weakest since January 2017.

The dollar index edged higher and was just below its a 10-week high it hit on Friday. The index gained on a decline in the euro after news German Chancellor Angela Merkel would not seek re-election as head of her CDU party.

Merkel said she would not seek re-election as party chairwoman, heralding the end of a 13-year era in which she has dominated European politics. [nL8N1X926U]

Oil prices edged lower overnight after Russia signaled that output will remain high and as concern over the global economy fueled worries about demand for crude.

The West Texas Intermediate crude futures and Brent crude futures last traded at $66.81 and $76.77 a barrel, respectively. [O/R]

(Reporting by Tomo Uetake; Editing by Sam Holmes)