SYDNEY (REUTERS) - Asian shares broke support and caved to a four-month low on Thursday (May 23), as concerns grew that the US-China trade conflict was fast morphing into a prolonged technology cold war between the world's two largest economies.
In early European trading, futures for the pan-region Euro Stoxx 50 and German DAX were each down 0.8 per cent while FTSE futures stumbled 0.6 per cent and France's CAC 40 futures slipped 0.7 per cent.
US stock futures also pointed to a weak start with the S&P 500 e-minis faltering 0.5 per cent.
Investors worry that the US-China trade dispute, which has already hurt global growth and business investment, could see a further sharp escalation with no signs of a resolution as yet.
Late Wednesday, Reuters reported the US administration was considering Huawei-like sanctions on Chinese video surveillance firm Hikvision over the country's treatment of its Uighur Muslim minority, according to a person briefed on the matter.
After the United States placed Huawei Technologies on a trade blacklist last week, British chip designer ARM has halted relations with Huawei in order to comply with the blockade.
Digging the knife in, the US military said it sent two Navy ships through the Taiwan Strait on Wednesday.
"Both the US and China appear to be preparing for a prolonged period of trade conflict," wrote analysts at Nomura in a note on the standoff.
"We think domestic pressures and constraints will drive both sides towards further escalation," they warned. "Without a clear way forward during an intensifying 2020 US presidential election, we see a rising risk that tariffs will remain in effect through end 2020."
In response, Shanghai blue chips shed 1.7 per cent to be near their lowest since February. An index of major telecoms firms fell 3.7 per cent as suppliers to Huawei suffered.
Treasury Secretary Steven Mnuchin said on Wednesday it would be at least a month before the United States would enact proposed tariffs on US$300 billion in Chinese imports as it studies the impact on American consumers.
MSCI's broadest index of Asia-Pacific shares outside Japan touched its lowest in four months and was last down 0.8 per cent.
Japan's Nikkei closed 0.6 per cent lower and South Korea's Kospi declined 0.3 per cent. Hong Kong's Hang Seng index tumbled 1.9 per cent while China's Shanghai Composite Index fell 1.4 per cent.
Singapore's Straits Times Index was down 0.8 per cent as at 3:20pm.
The Indian market bucked the trend as Prime Minister Narendra Modi's party scored a historic victory in the nation's general election with official data showing Modi's Bharatiya Janata Party (BJP) ahead in 292 of the 542 seats available.
At least 272 seats are needed for a majority in the lower house of parliament.
In currencies, constant trade friction saw the safe haven yen in demand again as the dollar dipped to 110.24 yen and away from the week's top of 110.67.
The US dollar was barely changed on the euro at US$1.1144 and slightly firm on a basket of currencies at 98.175.
Minutes of the US Federal Reserve's last meeting out on Wednesday underlined its readiness to be patient on policy "for some time" given the uncertain global outlook.
The chance of a rate cut seemed to diminish as many Fed policy makers saw recent weakness in inflation as "transitory", though the latest escalation in the trade war means markets are still wagering on an eventual easing.
Sterling had troubles of its own as it hit a 4-1/2-month low of US$1.2611.
British Prime Minister Theresa May came under intense pressure after her latest Brexit gambit backfired and fuelled calls for her to quit.
Prominent Brexit supporter Andrea Leadsom resigned from the government on Wednesday and British media reported May could announce her departure date as early as Friday.
BBC radio reported more British ministers could soon follow.
"Uncertainty is the only clear certainty in the near term," said Westpac macro strategist Tim Riddell.
"The risk of a hard-Brexit replacement for May has increased the risks of a hard Brexit result or even a forced no-deal exit," he added. "Such an event would likely force GBP lower, increase risks of assets sliding and BOE (Bank of England) taking counter action to support assets."
In commodity markets, spot gold was a bit higher at US$1,274.73 per ounce.
Oil prices added to losses suffered overnight after an unexpected build in US crude inventories compounded investor worries about demand.
US crude was last down 53 cents at US$60.89 a barrel, while Brent crude futures lost 66 cents to US$70.33.