GLOBAL MARKETS-Stocks, yuan fall as Sino-U.S.trade war deepens; China retaliation eyed

* US prepares to raise tariffs on all remaining imports from
China
* China defiant, Trump-Xi talks seen likely at G20 summit in
June
* Yuan at 4-month lows; Bitcoin jumps to 9-month highs
* Asian stock markets: https://tmsnrt.rs/2zpUAr4
* European stocks set to open mixed

By Tomo Uetake and Wayne Cole
SYDNEY, May 13 (Reuters) - U.S. stock futures and Asian
shares fell on Monday on growing anxiety over whether the United
States and China will be able to salvage a trade deal, after
Washington sharply hiked tariffs and Beijing vowed to retaliate.
The United States and China appeared at a deadlock over
trade negotiations on Sunday as Washington demanded promises of
concrete changes to Chinese law and Beijing said it would not
swallow any "bitter fruit" that harmed its
interests. Investors are bracing for threatened "counter-measures" from
China in retaliation for Washington's tariff increase on Friday
on $200 billion worth of Chinese goods. The move followed
accusations by U.S. President Donald Trump that Beijing "broke
the deal" by reneging on earlier commitments.
U.S. stock futures, the S&P 500 e-minis ESc1 , shed 1.1%.
In early European trade, FTSE futures FFIc1 stood almost
flat at 7,173, German DAX futures FDXc1 were down 0.1
percent at 12,069.5 and France's CAC 40 futures FCEc1 were up
0.2 percent at 5,332.5.
MSCI's broadest index of Asia-Pacific shares outside Japan
.MIAPJ0000PUS dropped 0.7%, nearing its two-month low marked
on Thursday.
Chinese shares tumbled, with the benchmark Shanghai
Composite .SSEC and the blue-chip CSI 300 .CSI300 shedding
1.3% and 1.8%, respectively, while Hong Kong's financial markets
were closed for a holiday. Japan's Nikkei average .N225 sunk as much as 1.0% to hit
its lowest level since March 28, before it closed down 0.7%.
U.S. benchmark 10-year Treasury note yields US10YT=RR
inched down to 2.439%, partly as a safe haven but also on
speculation that the escalating trade war would put more
pressure on global growth and thus keep major central banks
accommodative.
"We not expect China to sell U.S. Treasuries," ING said.
This is a tool China will save as a last resort, and it may not
even be used in the unlikely event of a breakdown in trade
negotiations."
White House economic adviser Larry Kudlow told a Fox News
program that China needs to agree to "very strong" enforcement
provisions for an eventual deal and said the sticking point was
Beijing's reluctance to put into law changes that had been
agreed upon.
Kudlow said the U.S. tariffs would remain in place while
negotiations continue and there is a "strong possibility" that
Trump will meet Chinese President Xi Jinping at a G20 summit in
Japan in late June. "Our base case remains that a trade deal between the United
States and China is likely. But news flow today suggests this
could take more time and is unlikely to be concluded until late
June," said John Woods, Hong Kong-based chief investment officer
of APAC at Credit Suisse AG.
Others were more pessimistic, noting Washington said it was
preparing to raise tariffs on all remaining imports from China,
worth approximately $300 billion.
"Our base case is for limited progress and Chinese
retaliation. We see a significant risk for all Chinese imports
to be subject to tariffs over the next month or so," said
Michael Hanson, head of global macro strategy at TD Securities.
"The market reaction will ultimately depend on whether China
and the U.S. continue to negotiate, whether the remaining $325
billion of U.S. imports from China also get tariffed, how China
retaliates, and what happens to the (section) 232 auto tariffs."
Under that scenario, the renminbi CNY=CFXS was likely to
fall between 5%-6% against the U.S. dollar in the coming three
months, said Hanson, as a shock absorber to the economic impact
of heavier tariffs.
The offshore Chinese yuan fell to its lowest levels in more
than four months at 6.88 to the dollar CNH= . It last stood
down 0.6% at 6.86 per dollar.
Major currencies were relatively calm, with the safe-haven
yen still supported but not aggressively so. The dollar was
holding at 109.74 yen JPY= , down 0.2% on the day and just
above a 14-week trough of 109.46.
The euro was steady at $1.1234 EUR= , while the dollar was
little changed against a basket of currencies at 97.312 .DXY .
"If there is a lack of progress (in the U.S.-China talks)
over the coming weeks, Asian currencies will come under further
pressure," noted Khoon Goh, head of Asia research at ANZ
Research, while adding that his team does not expect the yuan
will break the psychological 7 perdollar level.
"While we hope for the best, our baseline case is now for
the United States and China to fail to reach a deal, meaning
tariffs will get raised on the remainder of Chinese exports to
the United States."
In commodity markets, oil prices rose but remained a
relatively tight range, with the U.S. crude futures CLc1 were
last up 0.1% at $61.73 a barrel, while Brent crude LCOc1
futures gained 0.5 percent at $71.00. O/R
On the other hand, digital currencies maintained most of
their big gains made over the weekend.
Bitcoin BTC=BTSP jumped more than 10 percent on Saturday
and marked its nine-month high of $7,585.00 on Sunday before
paring the gains. It last quoted at $7063.52, up 1.2% on the
day.

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