GLOBAL MARKETS-Asian shares pare gains as U.S.-China tensions intensify

SYDNEY, July 15 (Reuters) – Asian shares pared gains on Wednesday, led by losses in Chinese stocks, after Beijing vowed retaliatory sanctions against the United States, while the euro rose to a four-month high on the prospect of stimulus ahead of a crucial EU summit.

U.S. President Donald Trump on Tuesday ordered an end to Hong Kong’s special status under U.S. law to punish China for what he called “oppressive actions” against the former British colony, prompting a warning from China.

MSCI’s broadest index of Asia-Pacific shares outside Japan was last up 0.14%, after rising over 1% earlier in the session.

Chinese shares were deep in red, with the blue-chip CSI300 index off 1% and Hong Kong’s Hang Seng index down 0.6%.

Japan’s Nikkei and Australia’s benchmark index remained upbeat though, and were up 1.4% and 1%, respectively.

E-mini futures for the S&P 500 gave back some of their gains but were still up 0.7%.

In a statement on Wednesday, China’s foreign ministry said Beijing will impose retaliatory sanctions against U.S. individuals and entities in response to the law targeting banks doing business with Chinese officials, though the statement released through state media did not reference Trump’s executive order.

“Hong Kong affairs are purely China’s internal affairs and no foreign country has the right to interfere,” the ministry said.

Overnight risk appetite was boosted by Moderna Inc’s experimental vaccine for COVID-19 which showed it was safe and provoked immune responses in all 45 healthy volunteers in an early-stage study.

On Tuesday, the Dow Jones Industrial Average rose over 2%, while the S&P 500 gained 1.34% and the Nasdaq Composite climbed 0.94%.

Stocks climbed despite rising Sino-U.S. tensions and three U.S. states reporting new record daily deaths from the pandemic.

“Markets have traded sideways for over a month as bulls and bears move their bishops and horses out on the chess board and then hoard them back in when the other side makes a move. The net result has been a prolonged stalemate,” said Perpetual analyst Matthew Sherwood.

“Forward-looking assumptions about COVID-19 treatments and vaccine offset what is happening today in terms of rising case numbers and an unwinding or stalling of re-opening plans.”

The dollar was on the defensive, particularly against risk-sensitive currencies, following news of progress in vaccine development.

The euro went as high as $1.1423, its strongest since March 10 and not far off its peak so far this year of $1.1495. It was last at $1.1395.

The single currency has been helped by hopes the European Union could agree at its summit later this week on a rescue financing package that will limit the economic damage to the bloc from the pandemic.

The yen was little moved at 107.27 per dollar, off a two-week high of 106.635 ahead of the Bank of Japan’s policy announcement later in the day where it is expected to keep monetary policy steady.

The risk-sensitive Australian dollar, too, pared gains to be last up 0.2% at $0.6990.

There were signs of wariness among investors, as yields on leading U.S. and euro zone government debt fell and safe-haven gold prices solidified gains above $1,800 an ounce.

Spot gold rose to $1,809 an ounce.

Oil prices rose on Wednesday after a sharp drop in U.S. crude inventories. Brent crude futures were up 24 cents at $43.14 a barrel, and U.S. crude futures rose 22 cents to $40.50 a barrel.