Asian stocks are vulnerable as trading tensions in the US and China escalate

TOKYO (Reuters) – Asian stocks came under pressure on Tuesday as Chinese markets and the yuan fell and were weighed down by renewed concerns over the worsening Sino-US trade war and losses in the Wall Street indices.

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

MSCI's broadest index for Asia-Pacific outside Japan fell 0.3 percent. The index fell more than 12 percent this month and is well on track since October 2008, the year of the global financial crisis.

Shanghai shares fell 0.6 percent in early trading, while the Japanese Nikkei average rose 0.7 percent, reversing earlier losses in a volatile session.

The major US indices fell sharply after a Bloomberg report that the US was preparing to announce tariffs on all remaining Chinese imports by early December should talks between presidents Donald Trump and Xi Jinping stall next month ,

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 increased volatility, and buyers will be overwhelmed when we have negative headlines over prices in times like these."

China's yuan continued to slide to near two-year lows after the central bank set its official yuan average to its lowest level in more than a decade.

In onshore trading, the yuan slipped 0.1 percent to 6.9698 per dollar, which sparked speculation that the central bank would tolerate slipping past the key level of $ 7 per dollar.

The dollar index rose higher, just below its 10-week high on Friday. The index rose after German Chancellor Angela Merkel had not requested a new election as head of her CDU party.

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 fell overnight as Russia signaled that production will remain high and concerns about the global economy fueled concerns about crude oil demand. [O/R]

West Texas Intermediate crude oil futures and Brent crude oil futures were last traded at $ 66.87 and $ 76.92 a barrel, respectively.

Reporting by Tomo Uetake; Arrangement of Sam Holmes

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