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Asian shares fell on Tuesday after US President Donald Trump stunned the markets by imposing tariffs on imports from Brazil and Argentina, rekindling fears over global trade tensions, while weak US factory data added to the investor gloom.
But European shares, which had also slumped following Trump's tariff announcement, were expected to rise on Tuesday.
The pan-region Euro Stoxx 50 futures were up 0.41 per cent in early trades, while German DAX futures added 0.45 per cent and the FTSE futures gained 0.26 per cent.
US S&P 500 e-mini stock futures also pointed higher, rising 0.2 per cent to 3,120.5.
MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.43 per cent as Australian shares recorded their worst day in two months with a 2.2 per cent drop. Japan's Nikkei shed 0.64 per cent.
But some Asian indexes rebounded in afternoon trade from their session lows.
China's blue-chip CSI300 index fell as much as 0.62 per cent before clawing back to register small gains. The Shanghai Composite Index was down 0.08 per cent after earlier hitting its lowest point since August 26.
Hong Kong's Hang Seng Index was 0.24 per cent lower after earlier falling as much as 1.44 per cent.
In tweets on Monday, Trump said he would impose tariffs on steel and aluminium imports from Brazil and Argentina, attacking what he saw as both countries' “massive devaluation of their currencies.”
Contrary to his remarks, both Brazil and Argentina have been trying to strengthen their respective currencies against the dollar.
Steven Daghlian, market analyst at CommSec in Sydney, said while the South American tariffs dominated market worries on Tuesday, China's response to US support for anti-government protesters in Hong Kong has also chilled sentiment.
“Markets are extremely sensitive to any good or bad news on the US-China dispute front, but also the US relationship with other nations as well,” he said.
China said on Monday US military ships and aircraft won't be allowed to visit Hong Kong, and also announced sanctions against several US non-government organisations for encouraging protesters to “engage in extremist, violent and criminal acts.”
Worsening the mood, data from the Institute for Supply Management (ISM) showed the US manufacturing sector contracted for a fourth straight month in November as new orders slid.
That erased cheer markets had drawn from upbeat Chinese factory surveys released over the past few days.
While trade war headlines have been a key driver of markets in recent weeks, sentiment has broadly held up. The US S&P 500 index, the Dow Jones Industrial Average, the Nasdaq Composite and Australia's S&P/ASX 200 index all touched record highs last week.
On Monday, the Dow Jones index fell 0.68 per cent to 27,861.52, the S&P 500 lost 0.59 per cent to 3,122.45 and the Nasdaq dropped 0.94 per cent to 8,584.20.
“I think some kind of breathing or consolidation probably is needed,” said Joanne Goh, Asia equity strategist at DBS in Singapore, noting that some data releases, such as China's factory surveys, are suggesting a bottoming out.
“I think investors should pick quality stocks not really affected by the trade war,” she said.
Bond turnaround
Bearish sentiment on Tuesday initially pushed US Treasury prices higher, but yields later rose slightly across the curve, reflecting the more positive mood in Europe.
Benchmark 10-year Treasury notes yielded 1.8414 per cent on Tuesday afternoon in Asia, up from a US close of 1.836 per cent on Monday. The policy-sensitive two-year yield ticked up to 1.6162 per cent from its US close of 1.614 per cent.
In the currency markets, the dollar rose 0.17 per cent against the yen to 109.16 and the euro was off 0.05 per cent, buying $1.1072.
The dollar index, which tracks the greenback against a basket of six major rivals, was up 0.06 per cent at 97.917.
The Australian dollar rose to $0.68440 after the Reserve Bank of Australia kept its cash rate on hold at 0.75 per cent and stuck with an optimistic outlook for the economy.
Oil prices continued to rise on expectations that the Organisation of the Petroleum Exporting Countries (OPEC) and its allies may agree to deepen output cuts at a meeting this week.
Global benchmark Brent crude added 0.26 per cent to $61.08 per barrel, and US West Texas Intermediate crude was up 0.38 per cent to $56.17 a barrel.
Gold was lower on the spot market, shedding 0.1 per cent to trade at $1,460.87 per ounce.
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