TOKYO (REUTERS) - Asia markets dropped on Friday (May 25) amid fragile market sentiment after US President Donald Trump called off a key summit with North Korea, though investor concerns were softened by expectations the two countries may still continue dialogue.
MSCI's broadest index of Asia-Pacific shares outside Japan ticked down. South Korea's Kospi fell 0.65 per cent. Japan's Nikkei fell 0.3 per cent.
On Wall Street, the S&P 500 ended 0.2 per cent lower on Thursday, though it clawed back a large part of its earlier loss of 0.95 per cent.
Safety bids boosted bond prices globally, driving yields lower.
The 10-year US Treasuries yield stood at 2.988 per cent, falling further from a seven-year high of 3.128 per cent hit a week ago.
The German 10-year Bund yield hit a 4-1/2-month low of 0.461 per cent, having fallen more than 11 basis points so far this week.
Despite the market's shift to safe-haven assets, there are no immediate signs of widespread investor panic with the Wall Street's volatility index, seen as gauge on investors'fears, ending at a four-month low on Thursday.
Analysts say that is primarily because investors are becoming accustomed to Trump's dramatic negotiation style, in which he makes drastic calls before making compromises, and are increasingly seeing his North Korean counterpart, Kim Jong Un, adopt a similar approach.
"I suspect they couldn't agree on denuclearisation. But looking at comments from the both sides, none of them is ruling out holding a meeting in the future. So I do not expect to see an immediate escalation in military tension," said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management.
North Korea's vice foreign minister Kim Kye Gwan said on Friday Pyonyang is open to resolving issues with the United States.
In addition to North Korea, the possibility of US tariffs on foreign auto imports are stoking worries about trade war, although investors also see this threat from Washington as a tactic to get better bilateral deals from major auto exporter nations.
In the currency market, traditional safe havens such as the Swiss franc and the yen were in favour.
The dollar traded at 109.31 yen, down about two per cent from Monday's four-month high of 111.395 and looks set to post its first weekly loss in nine weeks.
The yen is seen as a safe-haven because of Japan's status as the world's largest net creditor nation.
Against the Swiss franc, the US dollar extended losses to hit its lowest level since April of 0.9886 franc overnight and last stood at 0.9912.
The franc also stood near 2-1/2-month high against the euro hit earlier this week, trading at 1.1615 franc per euro.
The euro traded at US$1.1712, slightly above its six-month low of US$1.1676 touched on Wednesday, on course to mark its sixth consecutive week of fall.
The currency was dogged by worries about a new coalition government in Italy, to be formed by two anti-establishment parties as well as mounting signs of a slowdown in the currency bloc.
Oil prices slipped, partly on speculation reduced supplies from Venezuela and Iran could prompt Organization of the Petroleum Exporting Countries (Opec) to wind down output cuts in place since the start of 2017.
Opec may decide in June to lift output to make up for reduced supply from crisis-hit Venezuela and Iran, which was stung by the US decision to withdraw from the nuclear arms control deal, Opec and oil industry sources told Reuters.
Brent crude futures stood flat at US$78.80 a barrel, after a 1.27 per cent loss the previous day. US West Texas Intermediate (WTI) crude CLc1 futures fell were little changed at US$70.74 per barrel. They lost 1.57 per cent on Thursday.