By Swati Pandey
SYDNEY (Reuters) - Asian shares rebounded on Tuesday as Chinese markets proved resilient to a new round of tariffs from the United States although the mood was cautious as investors braced for a further escalation of tensions between the two giants.
U.S. stock futures reversed early losses, with E-Minis for the S&P 500 and the Dow up slightly.
However, European markets looked set for a subdued start. Futures for Eurostoxx 50 and Germany's Dax eased 0.2 percent while FTSE futures were down a shade.
Investors were nervous after U.S. President Donald Trump imposed 10 percent tariffs on an additional $200 billion worth of Chinese imports, and warned of duties on more products if China took retaliatory action.
Asian shares spent most of the morning in negative territory although the reaction was a little muted because Tuesday's announcement was in line with expectations and had been baked into prices.
MSCI's broadest index of Asia-Pacific shares outside Japan pared early losses to climb 0.3 percent while Japan's Nikkei ended 1.4 percent higher.
Chinese shares staged a late rebound as the blue-chip index jumped 1.9 percent, with some betting that Beijing will step up investment in roads and bridges to offset the impact of the latest tariff salvo from Trump.
Trump's announcement "is largely consistent with the claims made earlier," Citi analysts said in a note, estimating a 33 basis point drag on China's economic growth from the 10 percent tariff.
"The trade war may get worse before it gets better. A full-blown trade war looms closer now."
Chinese Vice Premier Liu He was to convene a meeting in Beijing on Tuesday to discuss the government's response, Bloomberg News reported, citing a person briefed on the matter.
The South China Morning Post newspaper reported, citing an unidentified source in Beijing, that China was reviewing an earlier plan to send a delegation headed by Liu He to the United States, and was now unlikely to go back to the negotiating table.
LIQUIDATING SHORTS
In currencies, the dollar index inched lower to 94.438 although the greenback was firmer at 112.23 against the Japanese yen, up 0.4 percent.
The risk-sensitive Australian dollar shed as much as 0.5 percent on the tariff news to near a recent 2-1/2 year low, then it changed direction and last was up 0.5 percent at $0.7212. [AUD/]
The euro gained 0.2 percent to $1.1704.
The offshore yuan held firm, last trading at 6.861 per dollar.
The renewed Sino-U.S. trade tension has piled pressure on the yuan but market participants refrained from aggressively testing lows for fear the authorities may quickly step in.
Investors were "spontaneously" liquidating their short yuan positions, which lifted the offshore yuan from its intraday low, said a trader at a Chinese bank.
"Market will watch out for China's possible reaction to the new round of trade tariffs. China is likely to reject the invitation from the U.S. Treasury for the new round of trade talk," OCBC Bank said in a note on Tuesday.
Oil prices fell on worries rising trade tensions could dent global demand for crude.
U.S. crude futures fell 21 cents to $68.70 a barrel while international benchmark Brent futures lost 35 cents to $77.70 per barrel.
Gold was weaker too, with spot prices down 0.1 percent at $1,199.2 an ounce.