By Hideyuki Sano
TOKYO (Reuters) – Asian shares inched up on Tuesday, with Chinese shares making modest gains after a week-long holiday, though investors remained cautious over U.S.-China trade talks after President Donald Trump said a quick trade deal was unlikely.
Japan’s Nikkei <.N225> climbed 1.0% while MSCI’s broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> rose 0.73%, led by gains in tech shares in South Korea and Taiwan.
South Korea’s Samsung Electronics <005930.KS> rose 1.2% after its profit guidance. The semiconductor firm said its third-quarter operating profit likely fell 56% on a downturn in global memory chip prices, but that was better than what analysts had anticipated.
Taiwan’s stock index <.TWII> gained 0.7% to hit five-month highs while Hong Kong shares <.HSI> extended gains after the territory’s leader said she had no plans to use the emergency regulation ordinance to introduce other laws.
Shanghai shares <.SSEC> rose 0.3% after the week-long break though gains were led mainly by defensive shares ahead of the crucial trade talks.
Spending on retail goods and dining during China’s National Day holidays returned to growth this year, offering unexpected respite to an economy that has been expanding at its weakest pace in almost three decades.
Still a private survey showed China’s services sector grew at its slowest pace in seven months in September.
On Wall Street, the S&P 500 <.SPX> lost 0.45% on Monday, unable to sustain gains made after positive tweets and news headlines about the trade talks.
“Given the importance of the event, markets will be extremely nervous. I expect things to stay this way for now. On the whole, markets are not that optimistic about the outlook,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management.
U.S. and Chinese deputy trade negotiators on Monday launched two days of talks aimed at paving the way later this week for the first minister-level negotiations in months.
But prospects for progress in U.S.-China trade talks dimmed after Washington blacklisted Chinese companies over Beijing’s treatment of predominantly Muslim ethnic minorities.
Among those blacklisted, trading in video surveillance company Hikvision <002415.SZ> was suspended while voice recognition front-runner IFLYTEK Co <002230.SZ> fell as much as 3.1%.
Trump also said he hoped China found a humane and peaceful resolution to the ongoing political protests in Hong Kong, and warned the situation had the potential to hurt trade talks.
The bilateral talks are getting underway ahead of a scheduled increase in U.S. tariffs on $250 billion worth of Chinese goods, to 30% from 25% on Oct. 15.
Trump has said the tariff increase will take effect if no progress is made in the negotiations.
“This ongoing trade-war discussion is a much more secular theme rather than something that is going to be resolved in the next couple of days,” said Maurice Meijers, a fixed-income portfolio manager at Dutch fund manager Robeco in Singapore.
Meijers said he doesn’t expect a sudden massive breakthrough that would give markets reason to rally. “That’s very unlikely, I’ll expect this to be an ongoing theme.”
In the currency market, the Turkish lira steadied for now after declining more than 2% on Monday over concerns about Ankara’s planned incursion in northern Syria.
Trump threatened to destroy Turkey’s economy if Ankara takes a planned military strike in Syria too far even though the U.S. leader himself has opened the door for a Turkish incursion.
The lira <TRYTOM=D3> traded at 5.837 per dollar, near its weakest level since Sept. 2.
Major currencies were more range-bound.
The euro stood at $1.0973 <EUR=>, with its recovery from its 2-1/2-year low of $1.10879 hit a week ago meeting a strong resistance around $1.10.
The dollar traded at 107.40 yen <JPY=>, up 0.15% after having found some support around 106.50 yen in the past few sessions.
Sterling traded at $1.2290 <GBP=D4>, capped by concerns that sizeable differences between Britain and the European Union remained for striking a Brexit withdrawal deal.
The yuan gained 0.35% to 7.1269 yuan per dollar <CNY=CFXS> after the Chinese central bank set a stronger-than-expected mid-point.
U.S. debt yields jumped back as $78 billion in note and bond supply slated for auction this week helped push prices lower after last week’s dramatic rise.
The 10-year U.S. Treasuries yield last stood at 1.575% <US10YT=RR>.
Oil prices rose on Tuesday, as unrest in oil-producing countries Iraq and Ecuador raised concerns of supply disruption.
Brent crude <LCOc1> futures rose 0.51% to $58.65 a barrel while U.S. West Texas Intermediate (WTI) crude <CLc1> gained 0.61% to $53.07 per barrel.
(Additional reporting by Tom Westbrook in Singapore, editing by Jacqueline Wong)