Global stocks slid further on Thursday as the standoff between the world's two largest economies extended beyond trade, reducing the odds of a "phase-one" deal this year and forcing investors to seek shelter in safe-haven assets.
The U.S. House of Representatives on Wednesday passed two bills intended to support protesters in Hong Kong and send a warning to China about human rights.
With U.S. President Donald Trump seen likely to sign the bill, Deutsche Bank strategist Jim Reid said this "could risk progress towards a phase one trade deal".
European shares extended their losses from Wednesday with the pan-European STOXX 600 and the trade-sensitive Germany's DAX 30 .GDAXI both sliding 0.7% to fresh two-week lows.
MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 1.1% to a near three-week lows, with Hong Kong's Hang Seng .HSI tumbling 1.6% while Japan's Nikkei .N225 dropped 0.5%. Chinese mainland shares dropped 0.3% .SSEC.
U.S. S&P500 futures ESc1 were down 0.2%, having dropped as much as 0.6% in Asian trade, a day after all three major indexes fell, with the S&P 500 .SPX losing 0.4%.
"The cracks in equity market sentiment widened a little further yesterday, although this setback remains modest in the context of the index gains enjoyed so far in Q4," Ian Williams, economics & strategy research analyst at Peel Hunt, said.
The S&P 500 .SPX had hit a record high as recently as Tuesday on trade deal hopes, but Washington's move on Hong Kong derailed the rally.
Trade experts and people close to the White House said completion of a "phase one" U.S.-China trade deal could slide into next year, as Beijing presses for more extensive tariff rollbacks, and the Trump administration counters with demands of its own.
Chinese Vice Premier Liu He, also the chief trade negotiator, said he was "cautiously optimistic" on a phase one deal, according to a report by Bloomberg.
As the chances of a deal in the near-term faded, investors sought the safety of government bonds, the yen and gold.
Spot gold XAU= climbed 0.2% to $1,473.56 per ounce as of 0852 GMT.
German government bond yields DE10YT=RR -- which move inversely to price -- steadied a day after hitting more than two week lows. The 10-year U.S. Treasuries yield dipped to 1.733% US10YT=RR, near its lowest levels in three weeks.
On the other hand, the Chinese yuan hit three-week lows, trading as low as 7.0450 to the dollar CNY=CFXS in onshore trade.
The dollar was soft against the yen at 108.59 JPY=, compared to this week's high of 109.07 touched on Monday. Japan's currency has rallied almost 1% from more than five-month lows hit against the greenback earlier this month.
"Our short-term strategy remains fairly cautious, as markets are very narrowly driven – every positive piece of news in trade negotiations sends markets higher, while any disappointment – sinks," Marija Veitmane, Senior Strategist at State Street Global Markets said.
"This makes it very hard for investors to build positions in risk trades."
The euro gained slightly and was last trading at $1.1077 EUR= ahead of the release of the latest European Central Bank's policy meeting minutes.
Meanwhile, oil prices dipped, paring some of their 2% gains made on Wednesday after a better-than-expected U.S. crude inventories report and as Russia said it would continue its cooperation with OPEC to keep the market balanced.
Global benchmark Brent futures LCOc1 dropped 0.5% to $62.08. U.S. West Texas Intermediate (WTI) crude futures CLc1 were down 0.5% at $56.73 per barrel in early Thursday trade.