GLOBAL MARKETS-Stocks, yuan fall as U.S.-China seen deadlocked in trade talks

* Trump-Xi talks likely at G20 summit: White House aide
Kudlow
* "We are right where we want to be with China" - Trump
* Asian stock markets: https://tmsnrt.rs/2zpUAr4
* S&P 500 futures, Japan's Nikkei fall 1% in early trading
* Major currencies calm for the moment; Bitcoin at 9-month
highs

By Tomo Uetake and Wayne Cole
SYDNEY, May 13 (Reuters) - U.S. stock futures fell and Asian
shares slipped on Monday on growing uncertainty over whether the
United States and China will be able to reach a deal to end
their escalating trade war.
The United States and China appeared at a deadlock over
trade negotiations on Sunday as Washington demanded promises of
concrete changes to Chinese law and Beijing said it would not
swallow any "bitter fruit" that harmed its
interests. E-Mini futures for the S&P 500 ESc1 shed 1.0%.
MSCI's broadest index of Asia-Pacific shares outside Japan
.MIAPJ0000PUS dropped 0.4%, nearing its two-month low marked
on Thursday.
Chinese shares tumbled, with the benchmark Shanghai
Composite .SSEC and the blue-chip CSI 300 .CSI300 shedding
1.4% and 1.6%, respectively, while Hong Kong's financial markets
were closed for a holiday. Japan's Nikkei average .N225 sunk as much as 1.0% to hit
its lowest level since March 28. It last traded down 0.5%.
U.S. benchmark 10-year Treasury note yield US10YT=RR
inched down to 2.441%, partly as a safe haven but also on
speculation that the escalating trade war would put more
pressure on global growth and thus keep major central banks
accommodative.
President Donald Trump tweeted late on Sunday that the
United States is "right where we want to be with China," adding
that Beijing "broke the deal with us" and then sought to
renegotiate. The trade war between the world's top two economies
escalated on Friday, with the United States hiking tariffs on
$200 billion worth of Chinese goods after Trump said Beijing
"broke the deal" by reneging on earlier commitments. China has
vowed to retaliate, without giving details.
White House economic adviser Larry Kudlow told a Fox News
program that China needs to agree to "very strong" enforcement
provisions for an eventual deal and said the sticking point was
Beijing's reluctance to put into law changes that had been
agreed upon. Kudlow said the U.S. tariffs would remain in place
while negotiations continue.
Beijing remained defiant. "Talks are on-going, but our base case is for limited
progress and Chinese retaliation. We see a significant risk for
all Chinese imports to be subject to tariffs over the next month
or so," said Michael Hanson, head of global macro strategy at TD
Securities.
"The market reaction will ultimately depend on whether China
and the U.S. continue to negotiate, whether the remaining $325
billion of U.S. imports from China also get tariffed, how China
retaliates, and what happens to the (section) 232 auto tariffs."
Under that scenario, the renminbi CNY=CFXS was likely to
fall between 5%-6% against the U.S. dollar in the coming three
months, said Hanson, as a shock absorber to the economic impact
of heavier tariffs.
The offshore Chinese yuan fell to its lowest levels in more
than four months at 6.88 to the dollar CNH= . It last stood
down 0.4% at 6.872 per dollar.
The other major currencies were relatively calm, with the
safe-haven yen still supported but not aggressively so. The
dollar was holding at 109.74 yen JPY= , down 0.2% on the day
and just above a 14-week trough of 109.46.
The euro was steady at $1.1233 EUR= , while the dollar was
little changed against a basket of currencies at 97.296 .DXY .
"If there is a lack of progress (in U.S.-China trade talks)
over the coming weeks, Asian currencies will come under further
pressure," noted Khoon Goh, head of Asia research at ANZ
Research, while adding that his team does not expect the yuan
will break the psychological 7 per dollar level.
"While we hope for the best, our baseline case is now for
the United States and China to fail to reach a deal, meaning
tariffs will get raised on the remainder of Chinese exports to
the United States."
In commodity markets, oil prices were softer in line with
the general mood of risk aversion. U.S. crude CLc1 was last
down 0.1% at $61.54 a barrel, while Brent crude LCOc1 futures
stood flat at $70.65. O/R
Spot gold firmed 0.1 percent to $1,286.59 per ounce XAU= .
On the other hand, digital currencies maintained most of
their big gains made over the weekend.
Bitcoin BTC=BTSP jumped more than 10 percent on Saturday
and marked its nine-month high of $7,585.00 on Sunday before
paring the gains. It last quoted at $7041.05, up 1.0 percent on
the day.

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