Asian stocks are tense with regard to the escalation of US-Chinese trading tensions

TOKYO (Reuters) – Asian stocks rebounded early in the morning and climbed higher on Tuesday as China made a fresh attempt to stabilize its stock markets, but earnings were fragile amid fears of a sharp escalation of US trade wars.

FILE PHOTO – A pedestrian is standing on an electronic board displaying the stock indices of various countries outside a brokerage firm in Tokyo, Japan, February 26, 2016. REUTERS / Yuya Shino

The major US indices said Monday that Bloomberg reported that the US agreed to impose tariffs on all remaining Chinese imports by early December if talks between Presidents Donald Trump and Xi Jinping fail next month.

Trump had already mentioned the possibility of such a move earlier, but did not specify a timeframe.

MSCI's broadest index for Asia Pacific equities outside of Japan fluctuated in and out of negative territory in the morning trade and gained 0.2% by midday.

The index lost 12 percent this month and is on the way to its biggest decline since October 2008 during the global financial crisis.

China's benchmark Shanghai Composite and the blue-chip CSI 300 were also restless and fell in early trading before rising 0.7 percent and 1.0 percent respectively by noon.

The China Securities and Exchange Commission said it would encourage share buybacks and listed companies' mergers and acquisitions, and increase market liquidity to fill the country's slippery stock markets.

The Japanese Nikkei average also erased the first losses and rose 1.3 percent. Traders said investors were looking for bargains between struck stocks.[.T]

"Nobody can say that the stock market bottomed out at this point, and global investor sentiment remains questionable," said Yasuo Sakuma, chief investment officer for Libra Investments in Tokyo.

The CBOE Global Markets Volatility Index, known as the Wall Street "Feistemaker", rose to 27.86 points, the highest since October 11, and the second highest since the volatility shock in early February.

"The likelihood of global equities becoming a bear market is increasing," said Masanari Takada, cross-asset strategist at Nomura Securities.

"While some investors looking at fundamentals are buying stocks on dips, there are other players who continue to sell automatically in response to heightened volatility, and in times like these, buyers can easily be overwhelmed by negative headlines, tariffs, etc."

Adding to the riots was the yuan weakening in China, approaching a closely monitored level of support.

In onshore trading, the yuan slipped 0.1 percent to 6.9724 per dollar, which equates to a 10-year low, triggering speculation that the central bank will tolerate a slide above the $ 7 per dollar key level.

Large Chinese state banks exchanged yuan for dollars in forwards on Tuesday, but there was no immediate evidence of selling the spot market dollar as the currency neared a significant support level, three traders said.

The Dollar Index was up against a basket of six major competitors, just below its 10-week high, which hit Friday. The index rose after German Chancellor Angela Merkel had not requested a new election as head of her CDU party. [FRX/]

Merkel said she would not stand for election as party leader and announce the end of a 13-year era in which she dominated European politics.

Oil prices were mixed after easing overnight as Russia signaled that production would remain high and worries about the global economy fueled concerns about crude oil demand. [O/R]

West Texas Intermediate crude oil futures climbed 0.2 percent to $ 67.17 a barrel, while Brent crude oil futures fell 0.2 percent to $ 77.12.

Reporting by Tomo Uetake; Additional coverage by Winni Zhou and Andrew Galbraith; Cut by Sam Holmes and Kim Coghill

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