Asian markets slipped on Friday leaving global shares just short of an all-time peak as investors turned cautious, fearing a new US law backing Hong Kong protesters could torpedo efforts to end the US-China trade war.
MSCI All Country world index, which tracks shares in 49 countries, were up 0.08 per cent, only 0.3 per cent away from all-time peak hit in January last year before the start of US-China trade war.
MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.9 per cent on Friday. Hong Kong led the losses, dropping 2 per cent. South Korean shares lost 1.2 per cent and Japan's Nikkei eased 0.1 per cent.
Asian markets were sold off due to uncertainty over how US markets will perceive the latest clash between Washington and Beijing over Hong Kong.
Traders on Wall Street will commence a half-day session on Friday following Thursday's Thanksgiving holiday. US S&P 500 mini futures were down 0.26 per cent.
China warned the US on Thursday it would take "firm counter measures" in response to US legislation backing anti-government protesters in Hong Kong.
Anthony Chan, chief Asia investment strategist at Union Bancaire Privée in Hong Kong, said the market is still erring on the side of caution especially as the year-end approaches.
"There is still downward pressure on earnings. That's why when there is (negative) geopolitical news, some funds might want to sell and lock in their performance," he said.
But on the whole, investors are now betting that while the US legislation spoils the mood, ultimately it remained in the interest of both Washington and Beijing to move forward with talks to get a trade deal.
"The working assumption for most investors is that this will not derail the trade talks, given China is suffering from an economic slowdown," said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities.
Sentiment in the region has enjoyed an additional boost from a strong share performance this week by Alibaba Group, Asia's largest firm by market capitalisation. Alibaba has risen as much as 16 per cent since their initial public offering in Hong Kong on Tuesday.
However, major currencies were kept in tight ranges amid a dearth of any other significant developments in US-China trade talks.
Against the yen, the dollar traded at 109.46 yen, near its six-month peak of 109.61 set on Wednesday.