Global Markets: Caution creeps into Asian markets as U.S. tariff deadline looms

By Swati Pandey

SYDNEY (Reuters) - Asian shares started cautiously on Thursday as a deadline loomed for fresh U.S. tariffs on China and amid speculation U.S. President Donald Trump's political position could be threatened by the legal woes of two former advisers.

U.S. and Chinese officials met for the first time in over two months to find a way out of their deepening trade conflict, but there was no evidence the low-level discussions would halt a new round of U.S. tariffs due Thursday.

Citi said in a global economic and outlook strategy report titled "Storm Squalls" that divergence in trade tensions between the United States and its various trading partners is likely to be a key driver for markets.

"Trade tensions have narrowed to U.S. vs China; however, there is no such thing as a bilateral trade war," it added.

"Despite recent signs that trade talks are resuming, we expect U.S.-China trade tensions to continue."

MSCI's broadest index of Asia-Pacific shares outside Japan eased 0.1 percent. Japan's Nikkei <.N225> and South Korea's Kospi index each climbed 0.2 percent.

Australian shares <.AXJO> were a tad softer amid political uncertainty over the future of Prime Minister Malcolm Turnbull after three senior ministers tended their resignations on Thursday.

The turmoil hit the Australian dollar, which slipped 0.44 percent for its second straight day of decline.

Another focus for investors will be manufacturing data from Europe and the United States later in the day as investors gauge whether the spectre of a global trade war is hurting economic activity.

A survey on Thursday showed Japanese manufacturing activity grew at a slightly faster pace in August as domestic demand jumped, but export orders contracted, adding to worries about rising trade protectionism.

The lead from Wall Street was mixed even as the S&P 500 marked its longest bull-market run in history. The Dow fell 0.3 percent, the S&P was mostly unchanged and the Nasdaq added 0.4 percent.

Investors are considering whether a twin political setback to Trump would hurt the Republican Party's election prospects and widen a criminal probe that has overshadowed his presidency.

Trump's former personal lawyer Michael Cohen pleaded guilty to a range of charges and said he acted at the direction of Trump while his ex-campaign manager Paul Manafort was found guilty of tax and bank fraud charges.

The White House pushed back forcefully against suggestions that a plea deal struck on Tuesday by Cohen implicated the president in a crime.

Trump was not charged and Cohen's plea deal does not mean the president has been implicated in anything, press secretary Sarah Sanders said at a White House briefing.

The dollar index , which measures the greenback against a basket of major currencies, paused after six straight sessions of losses took it to the lowest in three weeks. It was last up 0.1 percent at 95.27.

Forex markets barely budged after the release of minutes from the Federal Reserve's policy meeting that ended Aug. 1. Futures traders priced in a slightly higher chance that the Fed will increase rates two more times this year.

The euro was last off 0.2 percent at $1.1571, not far from Wednesday's two-week high of $1.1623 touched on Wednesday. The Japanese yen weakened 0.1 percent to 110.65 per dollar.

In commodities, Brent crude , the international benchmark, eased 4 cents to $74.74. U.S. crude gained 12 cents to $67.98.

U.S. gold futures for December delivery fell 0.2 percent while spot gold was a tad softer at $1,194.6 an ounce.

(Reporting by Swati Pandey; Editing by Sam Holmes)