Stock markets and the dollar fell on Monday following reports that US President Donald Trump is planning to hit China with another round of tariffs, dealing a blow to hopes for conciliatory talks between the two economic giants.
Traders sent stock indices higher on Thursday and on Friday as it emerged that US Treasury Secretary Steven Mnuchin had offered to meet officials from Beijing to avert an all-out trade war.
However, The Washington Post and Wall Street Journal said the president had decided to impose 10% levies on $200bn of Chinese imports and could make an announcement in the coming days.
That would come on top of the $50bn already announced over the summer and would account for about half of China's exports to the United States. Beijing has threatened to retaliate against any measures.
"The ongoing conflict between the US and China continues to be a primary driver of market sentiment, with investors concerned about the prospect of a full blown trade war as neither side shows a willingness to blink," said Craig Erlam, senior market analyst at Oanda trading group.
Hong Kong's stock market led losses on Monday, dropping 1.3%, while Shanghai ended 1.1% off. Tokyo was closed for a public holiday.
In mid-session European trading, London fell 0.2%, Frankfurt lost 0.5% and Paris dropped 0.3%.
While investors are in a selling mood, some positives could be taken from reports that Trump was considering 10% tariffs instead of the feared 25 percent, said JP Morgan Asset Management global market strategist Kerry Craig.
"Timing is also important when it comes to enacting any new tariffs. A staggered implementation is being viewed as the best of a bad situation," Craig added.
Meanwhile elsewhere on foreign exchange Monday, emerging market currencies continue to struggle as investors fret over a possible spillover from financial crises in Argentina, Turkey and South Africa.
The pound held up, with British Prime Minister Theresa May warning that her Brexit plan is the only alternative to crashing out of the European Union without agreement, in an interview broadcast on Monday.
It comes as the International Monetary Fund warned that Britain's economy would suffer "substantial costs" should it depart the EU in March with no divorce agreement.