GLOBAL MARKETS-Asian shares weaken as trade optimism fades

* Asian stocks edge lower as short-covering has run its
course
* Bond yields under pressure globally
* UK bond yields, pound under pressure on BoE remarks
* Asian stock markets: https://tmsnrt.rs/2zpUAr4

By Hideyuki Sano and Stanley White
TOKYO, July 3 (Reuters) - Asian shares fell on Wednesday as
initial enthusiasm over the latest U.S.-China trade truce was
overtaken by fresh concerns over Washington's threat of tariffs
on additional European goods.
Global growth concerns also weighed on investor confidence,
with South Korea the latest trade-reliant economy to cut its
economic growth and export targets, a day after weaker factory
readings worldwide. MSCI's broadest index of Asia-Pacific shares outside Japan
.MIAPJ0000PUS was 0.3% lower, while Japan's Nikkei .N225
slipped 0.6% in early trade.
U.S. stocks managed modest gains on Tuesday after holding
near the unchanged mark for much of the session, with the S&P
500 .SPX gaining 0.29% to a record close of 2,972.98,
underpinned by dividend-oriented utilities and real estate
stocks. .N
Still, a rally in global stocks following the U.S.-China
summit at weekend is rapidly losing steam. While the threat of
new U.S. tariffs has been postponed for now, existing tariffs
that have disrupted global supply chains are unlikely to be
lifted any time soon.
The United States and China agreed on Saturday to restart
trade talks after President Donald Trump offered concessions
including no new tariffs and an easing of restrictions on tech
company Huawei in order to reduce tensions with Beijing.
"The easing of Huawei ban was a bit of surprise so there was
a bit of short-covering. But there remain questions over how
effective the agreement will be," said Norihiro Fujito, chief
investment strategist at Mitsubishi UFJ Morgan Stanley
Securities.
Data published so far this week has showed factory activity
in the euro zone shrank at a faster pace than expected last
month and U.S. manufacturing activity slowed in June. Most Asian
factory gauges also contracted.
Moreover, the U.S. Trade Representative's office released a
list of additional European products that could be subject to
tariffs, on top of products worth $21 billion that were
announced in April. These included olives, Italian cheese and
Scotch whisky. Global bond yields are also hitting new lows as investors
bet on further monetary easing around the world amid faltering
global growth.
Bank of England Governor Mark Carney on Tuesday flagged
uncertainties stemming from trade disputes and Britain's
departure from the European Union even as he stuck to his line
that the central bank could raise rates in the event of a smooth
Brexit. The UK gilts yield tumbled 9 basis points to 0.722
GB10YT=RR , the first time in a decade the 10-year yield is
below the BOE's main policy rate.
European bond yields are expected to fall further after
European Union leaders agreed late on Tuesday to name France's
Christine Lagarde as the new head of the European Central Bank.
In the United States, Trump said on Tuesday he intends to
nominate Judy Shelton, an economic adviser to his 2016
presidential campaign, and Christopher Waller, an executive vice
president at the Federal Reserve Bank of St. Louis, to the
Federal Reserve board of governors. "Lagarde is likely to follow current ECB President Mario
Draghi's dovish stance," said Norio Miyagawa, senior economist
at Mizuho Securities.
"Trump has made it very clear he would prefer the Fed cut
rates, so I am sure he will try to lead it in that direction.
However, the International Monetary Fund has warned about the
risks of easing over an extended period because this depresses
yields so much."
The 10-year yield fell below two percent to go as low as
1.969% US10YT=RR , a low last seen in November 2016.
In the currency market the pound flirted with two-week lows
after Carney's comments and last stood at $1.2599 GBP=D4 .
The euro was steadier at $1.1291 EUR= while the dollar
traded at 107.87 yen JPY= , off Monday's high of 108.535 hit
after China and the United States agreed to resume trade talks.
Oil prices rose a tad after data showed U.S. crude
inventories fell more than expected last week but remained
wobbly after four-percent dives on Tuesday even after OPEC and
allies including Russia agreed to extend supply cuts until next
March. O/R
Brent crude LCOc1 futures traded at $62.85 per barrel, up
0.7% after having fallen 4.1% on Tuesday.
U.S. West Texas Intermediate (WTI) crude CLc1 futures rose
0.6% to %56.56 a barrel, following 4.8% drop the previous day.

(Editing by Kim Coghill & Shri Navaratnam)