GLOBAL MARKETS-Asian shares reverse early gains, eyes on China-U.S. trade relations

* Asian stock markets : https://tmsnrt.rs/2zpUAr4

SYDNEY, May 25 (Reuters) - A gauge of Asian stocks pared
early gains on Monday amid souring relations between China and
the United States, with Hong Kong shares extending losses on
mounting fears about future stability in the city.
MSCI's broadest index of Asia-Pacific shares outside Japan
.MIAPJ0000PUS fell 0.1% after starting higher with China's
blue-chip CSI300 index .CSI300 down 0.2%.
Hong Kong's HSI index .HSI dived 1.4% to a two-month low
after sinking 5.5% on Friday.
South Korea .KS11 , Australia .AXJO and New Zealand
.NZ50 were trading higher while E-minis for S&P500 ESc1 were
also slightly upbeat.
Japan's Nikkei .N225 jumped 1.5% after the Nikkei
newspaper reported the country was considering a fresh stimulus
package worth over $929 billion that will consist mostly of
financial aid programmes for companies hit by the coronavirus
pandemic. Analysts expect overall trading to be subdued with U.S. and
British markets shut for public holidays.
"Rising tensions between the U.S. and China around Hong
Kong, trade policy and who is responsible for the 2020 economic
dislocation is threatening to end the post March-trough rally,"
said Perpetual analyst Matthew Sherwood.
Global equity markets have surged around 30% since hitting a
low in early March, driven largely by policy stimulus.
"There is a plethora of headwinds brewing to have investors
question their expectations including earnings downgrades,
balance sheet develeraging, the absence of a (COVID-19) vaccine
and rising geopolitical tensions."
Global financial markets were already struggling to deal
with mammoth economic uncertainty emanating from COVID-19
lockdowns with central banks slashing interest rates and pumping
in huge sums of money into banking systems.
Governments across countries have also announced heavy
spending to support economic growth. But optimism around
economic re-openings and stimulus is fading.
Investors were rattled on Friday when China proposed
imposing national security laws on Hong Kong as Beijing unveiled
details of the legislation that critics see as a turning point
for the former British colony. The proposal drew the ire of Hong Kong residents who defied
social distancing rules and protested on streets while the
United States warned China's move could lead to U.S. sanctions.
The U.S. Commerce Department responded by adding 33 Chinese
companies and other institutions to a blacklist for human rights
violations and to address U.S. national security concerns.
Sino-U.S. ties have nosedived since the coronavirus
outbreak, with the administrations of President Donald Trump and
President Xi Jinping trading barbs over the pandemic, including
accusations of cover-ups and lack of transparency.
The two superpowers have also clashed over Hong Kong, human
rights, trade and U.S. support for Chinese-claimed Taiwan.
Later in the day, investor attention will shift to Germany,
where the May IFO survey is expected to show some improvement
off a record-low base.
Action in currencies was a tad muted.
The U.S. dollar was a shade higher on the yen JPY= at
107.65. The euro EUR= held near a one-week trough at $1.0895.
Sterling added 0.1% to $1.2176 while the Australian dollar
AUD=D3 was flat at $0.6533 after losses on Thursday and
Friday.
Rising trade tensions hit oil prices with U.S. crude CLc1
falling 10 cents, or 0.3%, to $33.15 a barrel. Brent LCOc1 was
off 25 cents, or 0.7%, at 34.88. O/R
Spot gold was off 0.4% at $1,727.2 an ounce XAU= .

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