Asian shares hit six-week lows in early trade on Thursday as increased tensions ahead of key Sino-U.S. trade negotiations fanned fresh concerns about the outlook for the global economy.
Investor focus has zeroed in on trade issues this week with Chinese Vice Premier Liu He expected to try to salvage a deal during negotiations with the United States in Washington on Thursday and Friday. That would avoid a sharp increase in tariffs on Chinese goods scheduled to take effect on Friday.
MSCI's broadest index of Asia-Pacific shares outside Japan edged down 0.3 percent to its lowest level since March 28.
Stocks extended earlier losses in Asian trade after President Donald Trump said that China "broke the deal" in trade talks with Washington and would face stiff tariffs if no agreement is reached.
Japan's Nikkei average shed 0.9 percent to its five-week low, while South Korea's KOSPI fell 0.8 percent and the Australian benchmark added 0.3 percent.
Trump has threatened to raise tariffs to 25 percent from 10 percent on $200 billion worth of Chinese imports at 12:01 a.m. ET (0401GMT) on Friday. Beijing has threatened to retaliate if tariffs rise, without elaborating on the details.
Kazuhiko Fuji, senior fellow at RIETI, a Japanese government affiliated think-tank, said the bilateral talks are looking fragile.
"I would suspect the U.S. will just hand China an ultimatum. No wonder the U.S. yield curve is almost inverting again," he said.
The yield spread between three-month bills and the 10-year notes shrank to 3 basis points, compared with about 15 basis points a few weeks ago.
The closely-watched spread turned negative in late March, spooking investors, who read the development as portending a future recession.
The benchmark 10-year Treasury yield stood at 2.460 percent, having hit its lowest level in five weeks of 2.426 percent on Wednesday.
Wall Street shares ended a choppy session flat to lower overnight, with the Dow Jones Industrial Average rising marginally, the S&P 500 and the Nasdaq Composite dropping 0.2 percent and 0.3 percent, respectively.
In the currency market, sterling weakened on signs that Brexit talks between Britain's government and the main opposition party may soon collapse.
The pound fell below the psychologically key $1.30 level, touching a six-day low overnight, and last traded at $1.301.
The dollar index against a basket of six major peers was flat, with other major currencies also confined to well-trodden ranges. The euro was little changed at $1.1194 and the Japanese yen little changed versus the greenback at 109.96 yen.
In the commodity market, oil futures gained on Wednesday, boosted by a surprise drawdown in U.S. crude stockpiles, but an escalating U.S.-Chinese trade fight limited gains as investors worried about the global outlook for energy demand.
Brent crude futures dropped 0.4 percent to $70.03 a barrel, while U.S. West Texas Intermediate (WTI) crude also retreated 0.5 percent to $61.82 per barrel.
Copper fell to a near three-month low on Wednesday on concerns over a potential resumption of tit-for-tat trade tariffs between the United States and China.
Benchmark copper on the London Metal Exchange fell 0.5 percent to $6,148 a tonne, after touching its lowest since Feb. 15 at $6,119.
