Asian stocks fall after China retaliates in trade war with US

Defense Secretary James Mattis welcomes Chinese Minister of National Defense Gen. Wei Fenghe to the Pentagon

SHANGHAI, May 14 (Reuters) - Fresh volleys in the U.S.

USA stock indices dived more than 2 percent on Monday as investors' sentiment was hit by grave concerns over the prospects of economic expansion and corporate earnings in the coming quarters.

"Investors are trying to figure out how much of the rally that we had this year was perhaps celebrating prematurely hopes of a trade deal".

China's retaliation has shattered dreams of a permanent trade truce.

"Admittedly, much off the pullback in equity prices this month can be pinned on worries about trade, which could quickly ease if the US and China hammer out some sort of deal", Mr. Higgins said. European equities and United States futures are posting relief rallies on Tuesday morning.

The FTSE 100 in Britain rose 0.9% to 7,230, while France's CAC 40 advanced 1.2% to 5,324.

A wave of selling swept through Wall Street Monday after China announced retaliatory tariffs on USA goods with the Dow Jones Industrial Average tanking more than 600 points or 2.4 percent lower, and with more blood on the horizon set for the rest of the week. European indexes were mostly down a bit more than 1%.

Prakash Sakpal, Asia economist at ING in Singapore, said the current volatility showed how a "180-degree" turn in US rhetoric on trade negotiations had spooked markets. "But the hopes for that are a bit misplaced now", he said.

Financial shares were the worst hit on the ASX, collectively falling 1.78 per cent, as all four big banks slipped and NAB traded ex-dividend.

The S&P 500, tracked by the C Fund, had its worst week of 2019 so far, with a decline of more than 2%.

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"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", said Kerry Craig, global market strategist at J.P. Morgan Asset Management. They are paid by importers of Chinese goods, usually American companies or the US-registered units of foreign companies.

Australian shares finished down 0.9% while Japan's Nikkei stock index closed 0.6% lower after touching its lowest level since mid-February. That was after the US last week raised tariffs on $200 billion in annual Chinese imports to 25% from 10%, and portended more following talks that ended Friday between the two countries without a deal. The yellow portion represents the next escalation of tariffs that President Trump announced a week ago.

The Dow Jones Industrial Average was up 207.06 points, or 0.82 percent, to 25,532.05 on Tuesday.

That move underscored worries about the economic impact of a trade war - a sustained inversion of that part of the yield curve has preceded every US recession in the past 50 years.

Mr. Higgins cited the previous inversion last month, when the three-month Treasury yield topped that of the 10-year, spooking markets. They were trading around $9 a bushel last month and are now at their lowest price since December 2008. "There is no recession in sight this year", said the NFIB. Analysts have warned that failed trade talks and the deterioration in relations will put a dent in the US and China's economic prospects. But most analysts downplayed such a possibility.

Trump's pledge on Friday to buy American farm products that China normally imports and distribute them to poor countries drew criticism from Canada.

The safe-haven yen lost ground as the mood improved, with the dollar strengthening 0.4% against the Japanese currency to 109.67. Citigroup and Bank of America rose more than 1% each while J.P. Morgan Chase gained 0.8%.

The world's two largest economies had seemed to be on track to resolve the ongoing trade dispute that has raised prices for consumers and pinched corporate profit margins.

The United States is "sucking the blood of the Chinese", said a comment left on the "Strong Country" blog of the ruling Communist Party's newspaper People's Daily.

Energy futures recovered, with USA crude gaining 18 cents to $61.22 per barrel in electronic trading on the New York Mercantile Exchange. Spot gold edged lower to $1,297.12 per ounce.

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