GLOBAL MARKETS-Asian shares falter as Trump-Xi trade jitters build

* MSCI Asia ex-Japan drops 0.26%; Nikkei off 0.55%
* Gold surges on trade uncertainty, weak dollar
* U.S. Treasury yields remain near recent lows
* Asian stock markets: https://tmsnrt.rs/2zpUAr4

By Andrew Galbraith
SHANGHAI, June 28 (Reuters) - Asian shares stumbled on
Friday amid rising doubts that a highly anticipated meeting
between U.S. President Donald Trump and Chinese President Xi
Jinping this weekend could lead to an easing of trade tensions.
Uncertainty over whether the talks will produce progress in
ending the year-long trade war between the world's two largest
economies comes amid signs of rising risks to global growth.
"I'm not sure the Americans can deliver what the Chinese
want and the Chinese don't want to deliver what the Americans
want," said Greg McKenna, strategist at McKenna Macro, adding
that he sees an "extend and pretend" outcome, in which Chinese
and U.S. officials agree to continue talks, as the most likely
outcome of the weekend meeting.
Regardless of the outcome, McKenna said, "we will not be in
a holding pattern on Monday morning."
MSCI's broadest index of Asia-Pacific shares outside Japan
.MIAPJ0000PUS fell 0.3%, with weakness in Chinese equities
weighing on the broader region. Japan's Nikkei stock index
.N225 was 0.55% lower.
White House economic adviser Larry Kudlow said Thursday that
Trump has agreed to no preconditions for the meeting, set to
take place on Saturday at the G20 summit in Japan, and is
maintaining his threat to impose new tariffs on Chinese goods.
Kudlow also dismissed a Wall Street Journal report that
China was insisting on lifting sanctions on Chinese telecom
equipment giant Huawei Technologies Co Ltd HWT.UL as part of a
trade deal and that the Trump administration had tentatively
agreed to delay new tariffs on Chinese goods. On Thursday, China's central bank pledged to support a
slowing economy as global risks rise, ahead of the release of
data that is expected to show China's factory activity shrank
for a second consecutive month in June. Chinese blue chips .CSI300 fell 0.49% on Friday and Hong
Kong's Hang Seng lost 0.59%. Australian shares .AXJO were off
0.3%.
The losses followed gains in global equity markets
overnight. But U.S S&P 500 e-mini stock futures ESc1 wavered
on Friday, trimming early gains to trade flat.
"Central expectations for the G20 meeting between Trump and
Xi are that negotiations will resume, additional U.S. tariffs
will be delayed, China will buy more U.S. goods and talks over
tech-trade will gain renewed focus," analysts at ANZ said in a
morning note.
"However, as the difficulty of resolving economic
aspirations between the two countries is herculean, markets
remain cautious."
Seema Shah, global investment strategist at Principal Global
Investors, said even if signs of progress emerge on trade,
investors would quickly move on to U.S. interest rate policy.
"As the equity market is now fully pricing in a 50 basis
point cut, market disappointment could be significant ... And if
the Fed follows through with a cut despite a brighter trade
outlook? Beyond the knee-jerk euphoria, expect minimal market
reaction – this last scenario is exactly what the market is
already expecting," she said in a note.
On Thursday, the S&P 500 .SPX rose 0.38% and the Nasdaq
Composite .IXIC added 0.73%. The Dow Jones Industrial Average
.DJI eased 0.04%, dragged down by losses in Boeing Co BA.N
shares following a Reuters report that the U.S. Federal Aviation
Administration identified a new safety risk in the planemaker's
grounded 737 MAX aircraft. .N
Highlighting mixed market views on the outlook for the
weekend's Sino-U.S. talks, yields on benchmark 10-year Treasury
notes US10YT=RR rose to 2.0123%, compared with a U.S. close of
2.005% on Thursday, despite the reversal in equities.
The two-year yield US2YT=RR was flat at 1.7409%, close to
recent lows, reflecting near certainty that the Federal Reserve
will cut benchmark interest rates in July.
The dollar was 0.19% lower against the safe-haven yen at
107.57 JPY= , while the euro was flat, buying $1.1368.
The dollar index .DXY , which tracks the greenback against
a basket of six major rivals, was also virtually flat at 96.197
after hitting three-month lows earlier this week.
In commodity markets, trade worries continued to weigh on
oil, with U.S. crude CLc1 losing 0.57% to $59.09 a barrel and
global benchmark Brent crude LCOc1 down 0.56% to $66.18 per
barrel.
The weak dollar and uncertainty over global trade saw gold
rebound after dipping below $1,400 per ounce on Thursday. Spot
gold XAU= was last traded at $1,420.35 per ounce, up 0.79%.
GOL/