The pound is struggling to recover as fears grow that Britain will leave the EU on October 31 without a divorce deal

Hong Kong (AFP) - Asian markets mostly fell after hefty losses in New York on Wednesday owing to growing China-US tensions ahead of fresh trade talks, while the pound remained beaten down by fears Britain is on the verge of crashing out of the EU.

The downbeat mood comes as investors fret over signs the global economy is slowing down, with the International Monetary Fund forecasting the weakest growth in a decade owing to long-running tariff disputes.

Days before high-level negotiations were due to resume, the US announced restrictions on 28 Chinese entities over human rights violations in Xinjiang province and imposed visa restrictions on some officials.

Then Bloomberg News reported unnamed Trump administration officials had said the White House was mulling new measures to curtail US investment in the country.

For its part, Beijing has hit out at the decisions and moved to take steps against the National Basketball Association in a brewing row over a team manager’s remarks on Hong Kong’s protest movement.

A report this week had already said China had narrowed the issues it was willing to discuss at the talks, with observers saying leaders felt in a stronger position as Donald Trump faces an impeachment inquiry at home and a weakening economy.

“It will be interesting to see how it plays out this week between the US and China,” Andrew Balls, at Pacific Investment Management, told Bloomberg News.

The flare-up comes “at a time when we already see growth pretty weak in the first half of next year and you have at least some evidence of weakness in manufacturing spilling into services”.

While economic data has been increasingly weak in recent months, hopes for this week’s talks have been providing some much-needed support. But the latest developments were a reminder that progress would likely be rocky.

- Oil facing pressure -

All three main indexes on Wall Street sank and on Wednesday, Hong Kong fell 0.8 percent while Tokyo closed down 0.6 percent. Sydney was also off 0.7 percent, Singapore dropped 0.8 percent and Taipei lost more than one percent.

Manila, Wellington, Taipei and Jakarta were also in the red but Mumbai and Shanghai posted gains.

In early trade London and Frankfurt each rose 0.2 percent, while Paris gained 0.1 percent.

“The US tactics are undoubtedly a high risk, seeking to pressure the Chinese trade delegation before the main event really gets underway,” said Jeffrey Halley, OANDA senior market analyst for Asia-Pacific. “Financial markets certainly thought so, with Wall Street a sea of red. The very real danger is the whole process backfires.”

There was little support from comments by Federal Reserve boss Jerome Powell, who said the US economy would continue to expand but that trade wars and Brexit were causing headwinds.

The remarks suggested the bank was in no rush to cut interest rates further, with unemployment at a 50-year low, despite jobs creation slowing.

On currency markets, the pound struggled to recover from Tuesday’s losses as Brexit talks between Britain and the European Union teetered on the brink, with both sides blaming the other with just three weeks until the October 31 deadline.

Prime Minister Boris Johnson and German Chancellor Angela Merkel were unable to reach an agreement over the Northern Ireland issue during a telephone conversation. A Downing Street official quoted Merkel as saying the Brexit talks were “close to breaking down”.

With many economists warning a no-deal Brexit could be calamitous for the British economy, the pound tumbled against the dollar and euro and there were warnings it could fall even further.

With negative sentiment prevalent across trading floors, the price of oil extended losses as investors worry about the impact of the prolonged trade war on demand.

“Oil’s fate is linked 100 percent to the trade talks now, with no progress looking likely,” Halley added. “Should this be confirmed by the week’s end, oil is likely to come under heavy selling pressure again.”

- Key figures around 0810 GMT -

Tokyo - Nikkei 225: DOWN 0.6 percent at 21,456.38 (close)

Hong Kong - Hang Seng: DOWN 0.8 percent at 25,682.81 (close)

Shanghai - Composite: UP 0.4 percent at 2,924.86 (close)

London - FTSE 100: UP 0.2 percent at 7,158.32

Pound/dollar: DOWN at $1.2220 from $1.2213 at 2040 GMT

Euro/pound: UP at 89.74 pence from 89.69 pence

Euro/dollar: UP at $1.0979 from $1.0955

Dollar/yen: UP at 107.26 yen from 107.07 yen

West Texas Intermediate: DOWN 10 cents at $52.53 per barrel

Brent North Sea crude: DOWN 11 cents at $58.13 per barrel

New York - Dow: DOWN 1.2 percent at 26,164.04 (close)