Asian markets retreat as protests batter Hong Kong

Hong Kong stocks are sharply down on uncertainty as tens of thousands of people block key roads in protest over government plans for a controversial extradition law. (Photo: AFP/Anthony Wallace)

Profit takers moved in while investors keep a nervous eye on developments in the China-US trade saga and an expected meeting between Donald Trump and Xi Jinping at the G20 summit in Japan this month.

The US president repeated on Tuesday that he expects to hold a face-to-face meeting with his Chinese counterpart on Osaka and said Beijing wanted a deal "very badly".

US Commerce Secretary Wilbur Ross tempered expectations the leaders would reach an agreement by saying the meeting could lead to progress but not a "definitive agreement". However, he said he was confident an agreement would be reached eventually.

The comments out of Washington were keeping traders on edge, though a broad narrative of central bank easing - with the Federal Reserve tipped to begin cutting interest rates and the European Union sticking to a softer outlook - is providing much-needed support.

"While there was only a sliver of hope a deal would get done before the G20, (Trump's) comments hardly suggest he's heading to Osaka in the most agreeable spirits," said Stephen Innes, managing partner at Vanguard Markets.

"Investors are clinging on to hope, buttressed by significant central bank backstops, that the G20 can somehow pull a rabbit out of the hat and as such don't want to be caught short if the event produces a (trade) deal."

Tokyo shed 0.4 per cent and Wellington 0.1 per cent off. Mumbai and Jakarta were also well down, while Sydney was marginally off.

OIL PRICES TUMBLE

Shanghai closed 0.6 per cent lower, while Hong Kong sank 1.7 per cent as the city was rocked by violent protests by tens of thousands of people against government plans for a controversial extradition law.

Major thoroughfares were blocked by the protests as lawmakers prepared to debate the bill, which would allow extraditions to China and that many fear will hammer Hong Kong's reputation as an international business hub. The debate was eventually postponed.

"Uncertainty on local policies will confuse investors and affect the flows in and out of Hong Kong stocks," Ronald Wan, chief executive of Partners Capital International, told Bloomberg News.

"Investors now need to ponder whether or not to pull out of the market given the local events and global factors including the trade war."

The Hong Kong dollar strengthened as the rate banks charge each other to borrow cash - known as the Hong Kong Interbank Borrowing Rate (Hibor) - rose to its highest since 2008 as lenders pulled cash out of the financial system. The rate has been rising for days.

Some observers suggested the increase in Hibor could be down to concerns about fund outflows from the city, though others suggested the money was being used to pay dividends or to meet seasonal demand, which often happens in June. Alibaba's flagged initial public offering has also been tipped to suck up liquidity, experts said.

On oil markets both main contracts sank nearly two percent after US data pointed to a jump in US stockpiles, exacerbating worries about oversupply and weakening demand.

"Oil prices have struggled to retain bullish gains as traders stay cautious over heightened geopolitical risks and persistent weakness in the global economic backdrop," said Benjamin Lu, commodities analyst with Phillip Futures in Singapore.

Lu and other analysts said oil prices are getting support from expectations that OPEC and Russia would agree to extend output cuts beyond June during a meeting later this month.

In early trade London fell 0.3 per cent, Paris eased 0.5 per cent and Frankfurt was 0.4 per cent lower.

- Key figures around 0810 GMT -

Tokyo - Nikkei 225: DOWN 0.4 per cent at 21,129.72 (close)

Hong Kong - Hang Seng: DOWN 1.7 per cent at 27,308.46 (close)

Shanghai - Composite: DOWN 0.6 per cent at 2,909.38 (close)

London - FTSE 100: DOWN 0.3 per cent at 7,375.56

Euro/dollar: UP at US$1.1335 from US$1.1328 at 2040 GMT

Pound/dollar: UP at US$1.2732 from US$1.2723

Dollar/yen: DOWN at ¥108.36 from ¥108.51

Oil - West Texas Intermediate: DOWN US$1.00 at US$52.27 per barrel

Oil - Brent North Sea: DOWN US$1.01 at US$61.28 per barrel

New York - Dow: DOWN 0.1 per cent at 26,048.51 (close)