Regional markets seized on comments from the US Federal Reserve to send shares up early yesterday, but the gains faded as jitters over the Group of 20 summit took hold.
The early movers - Sydney and Tokyo - saw healthy gains of about 0.9 per cent while Singapore stocks climbed strongly before lunchtime, with the Straits Times Index (STI) up 1.1 per cent.
But the rally proved short-lived, and the STI ended just 0.5 per cent higher at 3,109.44.
Gainers outnumbered losers 235 to 167, with about 2.2 billion shares worth $1.21 billion traded. Local banks were among the top gainers: DBS added 1.3 per cent to $24.18, OCBC rose 0.8 per cent to $11.24 and UOB gained 1.17 per cent to $25.11.
Real estate investment trusts (Reits) also rallied. ParkwayLife Reit kept up its early momentum, rising 2.67 per cent to finish at $2.69, as did Mapletree Logistics Trust (MLT), up 1.61 per cent to $1.26, and Suntec Reit, 1.7 per cent higher at $1.80.
The Singapore Exchange this week said Mapletree Reits, which include MLT, are among the most defensive stocks as their annualised total returns since their initial public offerings between 2005 and 2013 hit 13.3 per cent.
Overnight, US equities posted their biggest intraday rally since March, following Fed chairman Jerome Powell's dovish speech.
His remarks that interest rates were "just below neutral" lowered expectations for further rate rises next year, although a December hike is still likely.
Concerns over higher US interest rates have contributed to the recent global equity sell-off.
But markets may have misinterpreted the Fed's message and focused only on a portion of Mr Powell's remarks, DBS Group Research strategists said.
They noted that "other parts of the message acknowledged that data dependence will be more important going forward", and added that if US figures such as labour and consumer prices hold up as expected, the Fed should be able to deliver "several more hikes in 2019".
Markets now have to contend with the G-20 summit, largely seen as an opportunity for China and the United States to break a negative spiral in financial markets.
CMC analyst Margaret Yang thinks markets have not fully priced-in the possibility of a breakdown in talks and imposition of further tariffs on all the remaining Chinese goods.
Gold rose on the back of the weaker US dollar, gaining 0.4 per cent to US$1,226.19 an ounce, the highest in a week.