U.S. asks allies to shun Huawei equipment, WSJ reports; sector stocks fall

(Reuters) - The U.S. government is trying to persuade wireless and internet providers in allied countries to avoid telecommunications equipment from China's Huawei Technologies, the Wall Street Journal reported on Thursday.

The move would further pile pressure on the world's biggest telecom gear maker, which is under scrutiny from Western intelligence agencies for its perceived ties to China's government and the possibility its equipment could be used for espionage.

U.S. officials have reached out to their government counterparts and telecom executives in friendly countries where Huawei equipment is already in wide use about what they see as cybersecurity risks, according to the WSJ report, which cited unnamed people familiar with the situation.

The United States has already largely barred Huawei from supplying its government and contractors, while Australia has banned the company from supplying equipment for a 5G mobile network.

Huawei, which has repeatedly denied engaging in intelligence work for any government, is one of several Chinese tech companies that have come under U.S. government scrutiny as a trade war between the two countries escalates.

On Friday, the Hong Kong shares of rival ZTE Corp fell as much as 5.6 percent, dragging down the sector. They recouped some losses to trade down 2 percent around midday, while the firm's Shenzhen shares were down 3 percent.

ZTE's value has nearly halved this year, battered by a three-month U.S. government ban on American firms selling parts to the firm, and a subsequent $1.4 billion settlement.

On Friday, an index tracking major telecoms firms on the mainland dropped more than 3 percent.

FINANCIAL AID

Washington has been considering increasing financial aid for telecommunications development in countries that shun Chinese-made equipment, the WSJ reported on Thursday.

One of the government's concerns is based on the use of Chinese telecom equipment in countries that host U.S. military bases, such as Germany, Italy and Japan, the report added.

A U.S. Department of Commerce spokesman said in a statement that the department would remain vigilant against any threat to U.S. national security.

Huawei did not immediately respond to a Reuters request for comment. Speaking at a regular news briefing in Beijing, a Chinese foreign ministry spokesman said he hoped "relevant countries" would provide a "fair and predictable" investment environment for Chinese companies.

Earlier this week, Huawei said it had signed 22 commercial contracts for 5G networks.

It will also open a new information security lab in Germany that will enable source code reviews, in a step aimed at winning regulators' confidence before the country's 5G mobile spectrum auction, a German regulator told Reuters last month.

(Reporting by Bhanu Pratap in Bangalore, Michelle Price in Washington, Sayantani Ghosh in Singapore; Additional reporting by Philip Wen in Beijing; Editing by Rosalba O'Brien)