GLOBAL MARKETS-Asian shares extend losses as U.S.-China trade war escalates

* MSCI Asia ex-Japan -0.9%; Nikkei off 0.7%
* CSI300 turns higher in choppy trade
* U.S. stock futures higher, yen lower following Trump
comments
* Asian stock markets: https://tmsnrt.rs/2zpUAr4

By Andrew Galbraith
SHANGHAI, May 14 (Reuters) - Asian shares deepened losses on
Tuesday amid a fresh deterioration in the Sino-U.S. tariff war,
although comments from U.S. President Donald Trump that he
expected trade negotiations to be successful helped stabilise
sentiment.
China on Monday announced it would impose higher tariffs on
$60 billion of U.S. goods following Washington's decision last
week to hike its own levies on $200 billion in Chinese imports.
MSCI's broadest index of Asia-Pacific shares outside Japan
.MIAPJ0000PUS was down 0.9% in mid-morning trade, after
earlier touching its lowest level since Jan. 30.
Providing some support for Asian markets were comments from
Trump late Monday that trade talks with China "are going to be
very successful". That helped lift U.S. stock futures 0.5%,
through sentiment remained fragile. Kerry Craig, global market strategist at J.P. Morgan Asset
Management said that the global sell-off could continue.
"Politicians may be willing to focus less on the market
impact until things get more severe, making it doubtful there
will be an early resolution to the current breakdown in
negotiations simply based on market moves," he said.
"Furthermore, as there isn't a clear schedule for meetings
between Chinese and U.S. negotiators, markets are likely to be
more volatile."
Broader Asian markets were dragged lower by sagging Chinese
shares, with the MSCI China index .MICN00000PUS dropping 1.3%.
But China's blue-chip CSI300 index .CSI300 turned higher in
volatile trade, gaining 0.3%.
Australian shares .AXJO lost 1.1% while Japan's Nikkei
stock index .N225 slid 0.7%.
The U.S. Trade Representative's office on Monday said it
planned to hold a public hearing next month on the possibility
of imposing duties of up to 25% on a further $300 billion worth
of imports from China.
The tariff escalation has rattled global markets, even as
Trump said he would meet with Chinese President Xi Jinping next
month.
On Monday, the Dow Jones Industrial Average .DJI fell
2.38% to 25,324.99, the S&P 500 .SPX lost 2.41% to 2,811.87
and the Nasdaq Composite .IXIC dropped 3.41% to 7,647.02.
As investors flocked to safe-haven assets, U.S. Treasury
yields remained near six-week lows early on Tuesday, though they
moved higher following Trump's comments. Benchmark 10-year
Treasury notes US10YT=RR last yielded 2.4174% compared with a
U.S. close of 2.405% on Monday.
The two-year yield US2YT=RR , which rises with traders'
expectations of higher Fed fund rates, ticked up to 2.1986% from
a U.S. close of 2.193%. But data from CME Group continued to
show a more than 70 percent chance of the Fed cutting rates by
the end of 2019.
After an earlier inversion, U.S. 10-year yields moved higher
than those on three-month Treasury bills US3MT=RR . A sustained
inversion of this part of the yield curve has preceded every
U.S. recession in the past 50 years.
On Monday, some traders were concerned that China, the
largest foreign U.S. creditor, could dump Treasuries to counter
the Trump administration's hardening trade stance. But most
analysts downplayed such a possibility.
"If China did start to (sell Treasuries) it will galvanise
both side of politics in the U.S. against China and the Fed
would be sent into the market to buy bonds," Greg McKenna,
strategist at McKenna Macro said in a note to clients.
"That would expand its balance sheet but it would allow it
to neutralise China's efforts to disturb US financial markets.
So I doubt they'll try to sell Treasuries."
After earlier falling against the yen, the dollar
strengthened 0.25% against the Japanese currency to 109.57
JPY= .
The single currency EUR= was up about 0.1% on the day at
$1.1231, while the dollar index .DXY , which tracks the
greenback against a basket of six major rivals, was slightly
higher at 97.352.
Worries over an escalating trade war had hit commodity
markets, but improving sentiment sent U.S. crude CLc1 0.1%
higher to $61.11 a barrel. Brent crude LCOc1 was steady at
$70.25 per barrel.
Gold gave up gains after earlier rising amid broader market
jitters. Spot gold XAU= was down 0.1% at $1,298.63 per ounce.
GOL/ Bitcoin BTC=BTSP gained 1.7% to $7,945.49.