HONG KONG (AFP) Asian investors shifted uneasily on Friday (June 1) as fears of a trade war blasted back to the fore after US President Donald Trump imposed stiff tariffs on European, Mexican and Canadian steel and aluminium.
The move sparked immediate countermeasures by Mexico and Canada, while the European Union threatened a similar response, throwing up the prospect of a painful conflict between some of the world's biggest economies.
French President Emmanuel Macron labelled the move "illegal".
It also overshadowed news that Italy's populist parties had reached a deal to revive a coalition government and avoid a snap election that many had feared could be used as a referendum on the country's euro membership.
However, while some say the measures - which followed US warnings that tariffs on some Chinese goods were still up in the air - are a White House ploy to gain the upper hand in ongoing talks, others warn the issue could blow up.
"While markets overreacted to the Italian mess a couple of days back, it strikes me they might be under-reacting to the real - distractive - negatives of this trade skirmish developing into a trade war," said Greg McKenna, chief market strategist at AxiTrader.
"My guess is that many traders and investors see this as another negotiating tactic from the Trump administration," he said.
"But we are now genuinely faced with the type of tit-for-tat trade spat, of which there will be few winners and which could materially impact global growth and relations."
Mr McKenna also warned Mr Trump was at risk of being overwhelmed as he fights several battles at once, with North Korea, Iran, trade and the Russia investigation at home among the major issues in his inbox.
Hong Kong edged up 0.1 per cent and Tokyo ended the morning 0.3 per cent higher while Seoul gained 0.7 per cent.
But Shanghai fell 0.2 per cent with no early boost to companies listed on MSCI's emerging market index for the first time.
Inclusion means for the first time major investors wanting to track the index will have to buy stocks in the more than 200 mainland firms, though their weighting for now is miniscule, making up just 0.4 per cent of it.
Sydney dropped 0.3 per cent, Singapore was 0.1 per cent off and Wellington dropped 0.2 per cent.
Investors are now looking ahead to the release Friday of US jobs data, hoping for an idea about Federal Reserve interest rate policy.
Also, a Group of Seven finance ministers meeting is due to take place at the weekend, with analysts looking for a possible fracture as Mr Trump embarks on a unilateral "America First" agenda.
On currency markets the euro was holding its ground, having surged from 10-month lows on the news from Rome, which brought some much-needed relief after days of uncertainty.