* Asian stock markets: https://tmsnrt.rs/2zpUAr4
* Asia ex-Japan hits 4-month low, China shares drop
* Yen, sovereign bonds buoyed by safe-haven bid
* Pound under pressure on reports PM May to quit
* Oil prices nurse losses as inventories build
By Wayne Cole
SYDNEY, May 23 (Reuters) - Asian shares broke support and
caved to a four-month low on Thursday, as concerns grew that the
Sino-U.S. trade conflict was fast morphing into a prolonged
technology cold war between the world's two largest economies.
Late Wednesday, Reuters reported the U.S. administration was
considering Huawei-like sanctions on Chinese video surveillance
firm Hikvision 002415.SZ over the country's treatment of its
Uighur Muslim minority, according to a person briefed on the
matter. After the United States placed Huawei Technologies HWT.UL
on a trade blacklist last week, British chip designer ARM has
halted relations with Huawei in order to comply with the
blockade. Digging the knife in, the U.S. military said it sent two
Navy ships through the Taiwan Strait on Wednesday. "Both the U.S. and China appear to be preparing for a
prolonged period of trade conflict," wrote analysts at Nomura in
a note on the standoff.
"We think domestic pressures and constraints will drive both
sides towards further escalation," they warned. "Without a clear
way forward during an intensifying 2020 U.S. presidential
election, we see a rising risk that tariffs will remain in
effect through end 2020."
Shanghai blue chips .CSI300 shed 1.2% in response to be
near their lowest since February. An index of major telecoms
firms .CSI000994 fell 2.7% as suppliers to Huawei suffered.
MSCI's broadest index of Asia-Pacific shares outside Japan
.MIAPJ0000PUS touched its lowest in four months and was last
down 0.7%.
Japan's Nikkei .N225 lost 0.7% and South Korea .KS11
0.3%. Also feeling the pain, E-Mini futures for the S&P 500
ESc1 dropped 0.4%.
India's market .BSESN was expected to buck the trend as
media reported Prime Minister Narendra Modi's party was well
ahead in an election vote count. Treasury Secretary Steven Mnuchin said on Wednesday it would
be at least a month before the United States would enact
proposed tariffs on $300 billion in Chinese imports as it
studies the impact on American consumers. Minutes of the U.S. Federal Reserve's last meeting out on
Wednesday underlined its readiness to be patient on policy "for
some time" given the uncertain global outlook.
The chance of a rate cut seemed to diminish as many Fed
policy makers saw recent weakness in inflation as "transitory",
though the latest escalation in the trade war means markets are
still wagering on an eventual easing FEDWATCH .
Yields on two-year Treasuries US2YT=RR of 2.237% are also
well below the current effective funds rate at 2.39%.
ENDLESS BREXIT
In currencies, constant trade friction saw the safe haven
yen in demand again as the dollar dipped to 110.24 yen JPY=
and away from the week's top of 110.67.
The dollar fared better on the euro at $1.1151 EUR= and
was steady on a basket of currencies at 98.111 .DXY .
Sterling had troubles of its own at $1.2646, having hit a
four-month low of $1.2625 GBP= overnight.
British Prime Minister Theresa May came under intense
pressure after her latest Brexit gambit backfired and fuelled
calls for her to quit. Prominent Brexit supporter Andrea Leadsom resigned from the
government on Wednesday and British media reported May could
announce her departure date as early as Friday.
"Uncertainty is the only clear certainty in the near term,"
said Westpac macro strategist Tim Riddell.
"The risk of a hard-Brexit replacement for May has increased
the risks of a hard Brexit result or even a forced no-deal
exit," he added. "Such an event would likely force GBP lower,
increase risks of assets sliding and BOE (Bank of England)
taking counter action to support assets."
In commodity markets, spot gold was little changed at
$1,273.12 per ounce XAU= .
Oil prices added to losses suffered overnight after an
unexpected build in U.S. crude inventories compounded investor
worries about demand. O/R
U.S. crude CLc1 was last down 33 cents at $61.09 a barrel,
while Brent crude LCOc1 futures lost 40 cents to $70.59.
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(Editing by Sam Holmes and Jacqueline Wong)