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Global Markets: Asia shares fall as lift from U.S.-China trade truce ends

Reuters  |  SHANGHAI 

By Andrew Galbraith

(Reuters) - Asian shares fell on Tuesday as a relief rally petered out amid rising doubts over whether and the will be able to resolve trade differences.

An inverted U.S. also raised concerns about a possible

MSCI's broadest index of shares outside fell 0.3 percent as Chinese equity markets struggled to move out of negative territory.

Chinese blue-chip shares in and were slightly weaker, and the benchmark Composite index edged barely higher. Shares in Hong Kong lost 0.3 percent.

shares gave up 0.8 percent and Seoul's Kospi fell 0.6 percent, while Japan's Nikkei stock index was 1.3 percent lower.

The temporary freeze on further hostilities in the trade war between the and had sparked a global rally in equity markets on Monday, pushing MSCI's all-country world index up 1.3 percent.

But even before the trading day ended, pulled back from intraday highs as investors pondered unresolved issues between the two countries.

Overnight, the Dow Jones Industrial Average closed 1.13 percent higher, the S&P 500 gained 1.09 percent and the Nasdaq Composite added 1.51 percent.

"Overall trade overnight (has) probably left the market with more questions than answers, can the US and really resolve their differences in 90 days?" National Bank analysts said in a note to clients.

"It seems that more details and signs of progress will be needed if the initial trade truce warm fuzzy feeling is to be sustained."

Already, there was confusion over when the 90-day period would start. A said it started on Dec. 1. Earlier, told reporters it would start on Jan. 1.

Moreover, none of the commitments that U.S. officials said had been given by China, including reducing its 40 percent tariffs on autos, were agreed to in writing and specifics had yet to be hammered out.

"The fear across global markets is that this is just a short term relief rally and we will find ourselves back where we were a few weeks ago and staring down the barrel of a long term global growth slow down," Nick Twidale, Sydney-based at said in a note.

"In the short term it seems we may find investors once again back to trading sentiment fluctuations as hits the markets piecemeal on trade agreement progress."

Adding to worries over the outlook for the global economy, the between U.S. three-year and five-year notes, and between two-year and five-year paper inverted on Monday - the first parts of the Treasury to invert since the financial crisis, excluding very short-dated debt.

Analysts expect an inversion of the two-year, 10-year yield curve - seen as a predictor of a U.S. - to follow suit.

On Tuesday, the yield on benchmark 10-year Treasury notes fell to 2.9407 percent compared with its U.S. close of 2.991 percent on Monday. The two-year yield also fell, but by a narrower margin, touching 2.8028 percent compared with a U.S. close of 2.833 percent.

That put the spread between 10-year and two-year Treasuries at less than 14 basis points, its flattest level since July 2007.

"The market pricing evident in the yield curve inversion from three to five segment of the curve, as well as the dip in the 10-year yield below 3 percent yesterday, goes to reinforce these concerns" about the U.S. potentially heading into a recession, said Prakash Sakpal, an at in

However, he added that solid U.S. released Monday pointed to a stronger economic outlook, with new orders a "key driver" in boosting activity.

In contrast to how Asian equity markets could not sustain Monday's rally, continued to rise after surging 4 percent the day before on the U.S.-China trade truce, and ahead of a key OPEC meeting expected to lead to supply cuts.

U.S. crude was 1.2 percent higher at $53.58 per barrel, and Brent crude futures gained 1.1 percent to $62.35 a barrel.

In the currency market, the dollar index, which tracks the greenback against a basket of peers, softened 0.2 percent to 96.808.

The dollar was 0.3 percent weaker against the yen, at 113.28, and the euro gained 0.2 percent to $1.1373.

As the dollar weakened, China's yuan continued to surge. Since Friday, it has added more than 1,000 pips against the greenback, reaching 6.8545 on Tuesday morning. At 0327 GMT, it was trading at 6.8613 to the dollar.

Federal Reserve was scheduled to testify on Wednesday to a congressional Joint Economic Committee, but the hearing was postponed because of a of mourning for U.S. George H.W. Bush, who died on Friday.

The dollar came under pressure last week on Powell's comments that rates were nearing neutral levels, which markets widely interpreted as signalling a slowdown in the Fed's rate-hike cycle.

Spot gold jumped on the weaker dollar, trading up 0.40 percent at $1,235.88 per ounce. [GOL/]

(Reporting by Andrew Galbraith; Editing by and Richard Borsuk)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Tue, December 04 2018. 09:48 IST