GLOBAL MARKETS-Asian shares hit 3-1/2 month low as trade war intensifies

* MSCI Asia ex-Japan -1.1%, hits lowest since Jan 30
* Trump comments lift US stock futures, Europe shares seen
rising
* China shares trim losses, some see "national team" support
* Asian stock markets: https://tmsnrt.rs/2zpUAr4

By Andrew Galbraith
SHANGHAI, May 14 (Reuters) - Fresh volleys in the U.S.-China
tariff war pressured Asian shares on Tuesday, but comments from
U.S. President Donald Trump that he expects trade negotiations
to be successful eased some worries.
Chinese markets that were pummelled in early trade swung in
and out of the red amid signs of state support, but ended the
day lower.
Late on Monday, Trump said trade talks with China are "going
to be very successful". That helped lift U.S. stock futures,
which had been down, to be more than 0.4% up, though sentiment
remained fragile. European shares were expected to take their lead from U.S.
futures. In early European trades, the pan-region Euro Stoxx 50
futures STXEc1 were up 0.3% at 3,296, German DAX futures
FDXc1 were 0.07% higher at 11,890.5 and FTSE futures FFIc1
were up 0.14% at 7,140.
China on Monday announced it would impose higher tariffs on
$60 billion of U.S. goods following Washington's decision last
week to hike its own levies on $200 billion in Chinese imports.
MSCI's broadest index of Asia-Pacific shares outside Japan
.MIAPJ0000PUS was down 1.1% on Tuesday afternoon. The index
had earlier fallen as much as 1.25% to its lowest since Jan. 30.
Prakash Sakpal, Asia economist at ING in Singapore, said the
current volatility showed how a "180-degree" turn in U.S.
rhetoric on trade negotiations had spooked markets.
"We don't see any quick end to this state of the markets
until we see some resolution, constructive dialogue and
something very solid in terms of deals. But the hopes for that
are a bit misplaced currently," he said.
Broader Asian markets were dragged lower by sagging Chinese
shares, with the MSCI China index .MICN00000PUS dropping 1.8%.
China's blue-chip CSI300 index .CSI300 finished the day down
0.6%, with suspected state-backed buying of equities helping to
stem further losses. "Politicians may be willing to focus less on the market
impact until things get more severe, making it doubtful there
will be an early resolution to the current breakdown in
negotiations simply based on market moves," said Kerry Craig,
global market strategist at J.P. Morgan Asset Management.
"Furthermore, as there isn't a clear schedule for meetings
between Chinese and U.S. negotiators, markets are likely to be
more volatile."
Australian shares .AXJO finished down 0.9% while Japan's
Nikkei stock index .N225 closed 0.6% lower after touching its
lowest level since mid-February.
The U.S. Trade Representative's office on Monday said it
planned to hold a public hearing next month on the possibility
of imposing duties of up to 25% on a further $300 billion worth
of imports from China.
The tariff escalation has rattled global markets, even as
Trump said he would meet with Chinese President Xi Jinping next
month.
On Monday, the Dow Jones Industrial Average .DJI fell
2.38% to 25,324.99, the S&P 500 .SPX lost 2.41% to 2,811.87
and the Nasdaq Composite .IXIC dropped 3.41% to 7,647.02.
As investors flocked to safe-haven assets, U.S. Treasury
yields remained near six-week lows early on Tuesday, though they
moved higher following Trump's comments. Benchmark 10-year
Treasury notes US10YT=RR last yielded 2.4086% compared with a
U.S. close of 2.405% on Monday.
The two-year yield US2YT=RR , which rises with traders'
expectations of higher Fed fund rates, was at 2.1945%, up from a
U.S. close of 2.193%. But data from CME Group continued to show
a more than 70% chance of the Fed cutting rates by the end of
2019.
Underscoring market concerns over the economic impact of the
trade war, 10-year yields once again ticked below those on
three-month Treasury bills US3MT=RR . A sustained inversion of
this part of the yield curve has preceded every U.S. recession
in the past 50 years.
On Monday, some traders were concerned that China, the
largest foreign U.S. creditor, could dump Treasuries to counter
the Trump administration's hardening trade stance. But most
analysts downplayed such a possibility.
"If China did start to (sell Treasuries) it will galvanise
both sides of politics in the U.S. against China and the Fed
would be sent into the market to buy bonds," Greg McKenna,
strategist at McKenna Macro said in a note to clients.
"That would expand its balance sheet but it would allow it
to neutralise China's efforts to disturb U.S. financial markets.
So I doubt they'll try to sell Treasuries."
After earlier falling against the yen, the dollar
strengthened 0.31% against the Japanese currency to 109.64
JPY= .
The single currency EUR= was up less than 0.1% on the day
at $1.229, while the dollar index .DXY , which tracks the
greenback against a basket of six major rivals, was mostly
unchanged at 97.311.
China's offshore yuan CNH=D3 hit a fresh 2019 low early in
Asia on Tuesday before rebounding. It was last trading at 6.9009
per dollar, up 0.17% on the day.
Its onshore counterpart CNY=CFXS strengthened slightly to
6.8767 per dollar after touching four-month lows on Monday,
sparking speculation China's central bank may be letting the
currency weaken amid the intensifying trade war.
Oil prices edged higher, buoyed by Middle East tensions
though gains were checked by trade war concerns. Saudi Arabia
said two of its oil tankers were among those attacked off the
coast of the United Arab Emirates, describing it as an attempt
to undermine security of supply amid United States-Iran
tensions. U.S. crude CLc1 was 0.3% higher at $61.23 per barrel while
Brent crude LCOc1 gained 0.4% to $70.49 per barrel.
Elsewhere, gold gave up gains after earlier rising amid
broader market jitters. Spot gold XAU= edged lower to
$1,297.12 per ounce. GOL/ Bitcoin BTC=BTSP gained 4% to
$8,120.