CORRECTED - Asian stocks drop as fresh Trump jitters jolt risk sentiment

(Corrects 5th paragraph to say Wednesday's intraday fall in MSCI's broadest index of Asia-Pacific shares outside Japan is the biggest since Dec. 15, not March 9)

By Saikat Chatterjee

HONG KONG (Reuters) - Asian stocks posted their biggest drop in two weeks on Wednesday as growing doubts about Donald Trump's economic growth agenda prompted investors to dump risky assets and to rush to safe havens such as gold and government bonds.

Equity markets across the region were a sea of red in opening trades and the Australian dollar nursed heavy losses as funds took profits into a two-week long rally.

"Asian stocks have had a good run so this is a good excuse to take some money off the table though there is plenty of cash waiting on the sidelines to be invested if the selloff intensifies," said Alex Wong, a fund manager at Ample Capital Ltd. in Hong Kong, with about $130 million under management.

MSCI's broadest index of Asia-Pacific shares outside Japan fell 1.3 percent in early trade, its biggest intraday percentage fall since March 9. In the previous session, it hit its highest level since June 2015.

Japan and Australian stocks led regional losers.

Despite the early tumble, some investors such as Sherwood Zhang at Matthews Asia, part of a team that manages $26 billion in global assets, was optimistic about the outlook for Hong Kong stocks citing relatively reasonable valuations.

Both the S&P 500 and the Dow Jones Industrial Average lost more than one percent on Tuesday in frantic trading, their biggest one day slide since before Donald Trump's election victory in November. U.S. futures were down 0.3 percent

With valuations stretched -- U.S. stocks are trading at the upper end of their historical valuation ranges -- investors see the Trump administration's struggles to push through the healthcare overhaul as a sign he may also face setbacks delivering promised corporate tax cuts.

Expectations of those cuts have been a major driver behind the 10-percent surge in the S&P 500 since Trump's election.

ICARUS TRADE

In a BofA Merrill Lynch survey conducted last week, 34 percent of investors found equities to be most overvalued of all asset classes, the highest proportion in 17 years, with U.S. stocks identified as the most expensive.

"Investor positioning argues for a risk rally pause in March/April, with allocation to equities at a two-year high and bond allocation at a three-year low," said Michael Hartnett, chief investment strategist at the bank.

"Policy is the key catalyst for the Icarus trade to fly higher in the coming months."

With investor mood decidedly risk-off, the Japanese yen scored some chunky gains against the U.S. dollar, rising to a four-month high of 111.63. The greenback fell below a key level of 100 against a trade-weighted basket of its peers.

Bonds gained with yields on two-year U.S. debt falling to 1.27 percent in overnight trades, retreating further from a 7-1/2 year high of 1.38 percent hit last Wednesday when the U.S. Federal Reserve raised interest rates.

Gold was on track to extend its overnight strong performance with the precious commodity perched comfortably at a two-week high of $1,248 per ounce.

Commodities other than gold, however, have had a rough outing with copper and iron ore prices down by more than one percent each.

Oil prices declined as concerns about new supply overshadowed the latest talk by OPEC that it was looking to extend output cuts.

U.S. West Texas Intermediate crude extended overnight losses to fall to fresh four-month lows at $48.15 a barrel.

(Editing by Sam Holmes)