GLOBAL MARKETS-Hong Kong shares ease on China-U.S. rift, dollar firms

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

By Paulina Duran
SYDNEY, May 25 (Reuters) - Hong Kong shares extended losses
and a gauge of Asian stocks was largely subdued on Monday, after
China's move to impose a new security law on Hong Kong
heightened concerns about the future stability of the city and
global trade prospects.
Hong Kong's HSI index .HSI fell 0.4% after sinking 5.5% on
Friday, when Beijing proposed the new security legislation that
sparked protests across the island over the weekend.
The broader MSCI's index of Asia-Pacific shares outside
Japan .MIAPJ0000PUS was 0.3% higher on thin volume, with South
Korea .KS11 , Australia .AXJO and New Zealand .NZ50 all
trading higher.
E-minis for S&P500 ESc1 were 0.5% firmer, while the dollar
edged up helped by rising risk aversion.
"News flow has been pretty negative, particularly out of
Beijing and Washington, but we might be seeing some
inter-regional switching into those markets that are less likely
to be affected by the dispute," said Michael McCarthy, chief
market strategist at CMC Markets.
"Having said that, with Singapore, the UK and the U.S. all
on holiday, trading is thinner."
Japan's Nikkei .N225 jumped 1.7% after the Nikkei
newspaper reported the country was considering a fresh stimulus
package worth more than $929 billion that will consist mostly of
financial aid programmes for companies hit by the coronavirus
pandemic. "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 Beijing unveiled
details of the security 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 on Monday, 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 subdued.
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 $1.0891.
Sterling added 0.1% to $1.2180 while the Australian dollar
AUD=D3 was slightly lower at $0.6532 after losses on Thursday
and Friday.
Meanwhile, financial investors betting on a rebound in oil
helped lift prices with U.S. crude CLc1 rising 27 cents, or
0.81%, to $33.52 a barrel. Brent LCOc1 was 12 cents, or 0.34%
higher, at 35.25. O/R Spot gold was off 0.4% at $1,727.2 an ounce XAU= .

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(Additiona reporting by Swati Pandey; Editing by Christopher
Cushing and Jacqueline Wong)