GLOBAL MARKETS-Stocks gain on economic hopes, but Hong Kong risk clouds outlook

* Asian stock markets: https://tmsnrt.rs/2zpUAr4
* Shares gain in Australian and Japan
* Investors bet on economic recovery
* Hong Kong remains a risk

By Stanley White and Koh Gui Qing
TOKYO/NEW YORK, May 28 (Reuters) - Asian shares and U.S.
stock futures rose on Thursday as growing optimism about a
global economic recovery from the coronavirus pandemic trumped
immediate concerns about a standoff between the United States
and China over Hong Kong.
MSCI's broadest index of Asia-Pacific shares outside Japan
.MIAPJ0000PUS was up 0.6%. Stocks in China .CSI300 rose
0.44%, but shares in Hong Kong .HSI fell 0.23%.
Australian shares .AXJO rose 2.22% to the firmest in more
than two months, while Japan's Nikkei stock index .N225 rose
2.01% to the highest since late February as investors cheered
the re-opening of economic activity in both countries.
U.S. stock futures, S&P 500 e-minis ESc1 , rose 0.36% on
Thursday in Asia following another positive session on Wall
Street overnight, highlighting the optimistic mood.
However, the biggest risk to equities is the Sino-U.S.
relationship, which is likely to worsen after U.S. Secretary of
State Mike Pompeo said Hong Kong no longer warranted special
treatment under U.S. law.
"The overall tone is in support of risk-on trades, and we
can see less short-selling and more willingness to test the
upside in equities," said Yukio Ishizuki, FX strategist at Daiwa
Securities in Tokyo.
"There remains a fair amount of concern about Hong Kong, but
for now markets look like they will remain calm."
The S&P 500 .SPX had closed above 3,000 for the first time
in almost 12 weeks, bolstered by bank stocks, as investors hoped
that the world economy can recover as it re-opens. .N
The S&P 500 has leapt about 36% since the global coronavirus
pandemic dragged it to the year's low on March 23, but there are
concerns the rally may be overdone and susceptible to a
protracted pullback.
The decline in Hong Kong stocks underscores some investors'
concerns about the strength of the recent rally in global
equities.
Pompeo said overnight that China had undermined Hong Kong's
autonomy so fundamentally that the territory no longer warranted
special treatment, a potentially big blow to the city's status
as a financial hub. Some investors worry a punitive U.S. response to China on
the issue of Hong Kong could result in a tit-for-tat reaction
from Beijing, further straining ties between the world's two
biggest economies and further hobbling global growth.
Yields on 10-year U.S. Treasuries US10YT=RR rose slightly
to 0.6933%. Although 10-year yields are up from an all-time low
of 0.4980% struck in March, they are still a whopping 120 basis
points below highs seen in January.
Sources have said the U.S. government may suspend Hong
Kong's preferential tariff rates for exports to the United
States, a far less severe response than formally revoking Hong
Kong's special status under U.S. law. President Donald Trump said he will announce a response to
China's policies towards Hong Kong later this week.
Oil futures took a beating as investors fretted about
Trump's response to China. U.S. crude CLc1 dipped 3.41% to
$31.69 a barrel. Brent crude LCOc1 fell 1.76% to $34.13 per
barrel.
The offshore yuan CNH=D3 was mired near a record low of
7.1966 per dollar due to uncertainty over Hong Kong's future. In
onshore trade, the yuan CNY=CFXS was near its weakest since
September last year, which was during the height of the
U.S.-China trade war.
The euro EUR= , however, was buoyed by a 750 billion euro
plan to shore up economies hammered by the coronavirus pandemic.
That pushed the euro to an eight-week high and by early
Thursday, the common currency had nudged up to $1.1016, while
the U.S. dollar index USD= was unchanged at 98.908.
Spot gold XAU= rose 0.27% to $1,713.54 per ounce as some
investors opted for the safety of the precious metal. GOL/