Emerging market stocks fell for a second straight session on Thursday, as a diplomatic row between the United States and China sparked fears of a delay to a deal to end a trade war that has dented global growth and unsettled financial markets.
An index of developing world stocks was down 0.8%, with trade-sensitive South Korean shares leading declines. Shares in China and Hong Kong also dipped.
Washington on Wednesday passed two bills supporting protesters in Hong Kong, which U.S. President Donald Trump is expected to sign into law, drawing strong criticism from China.
The move threatens to undermine delicate trade negotiations between the world's top two economies, with a report on Wednesday saying a deal could be delayed until next year as Beijing calls for more extensive tariff rollbacks and Washington counters with heightened demands of its own.
"The escalation with Hong Kong is being seen as a proxy war between the United States and China," said Morten Lund, a senior FX strategist at Nordea. "This is definitely a negative and really diminishes the chances of getting something signed before New Year's."
Global markets were knocked back from 22-month highs scaled in the past few weeks on growing expectations of an interim trade deal, which Trump said last month could be signed by mid-November.
Still, assets in emerging markets are on track for their best quarter in three as major central banks step up monetary stimulus to prop up a slowing global economy. The U.S. Federal Reserve has cut interest rates three times this year and China's central bank has also signalled more financial support.
South Africa's rand firmed 0.3% against a slightly weaker dollar ahead of a central bank meeting on Thursday, where it is expected to keep the repo rate on hold before reducing it in May 2020, according to a Reuters poll.
"South Africa was in recession only last year and it makes sense for the central bank to think of ways to support the economy and try to surprise markets with a cut," Lund said.
The Turkish lira was little changed as a consumer confidence index rose to 59.9 points in November but stayed below 100, reflecting a pessimistic outlook.
The currency was supported by a new tax incentive for foreign buyers of lira-denominated bonds aimed at increasing the volume and liquidity of such transactions.
Russia's rouble was flat, shrugging off a general lift provided by nearing month-end tax payments, when export-focused companies convert their foreign currency to roubles to meet local duties.
The Russian stock index was slightly higher, boosted by a 3% gain for Gazprom after the world's largest gas producer said it was selling a stake worth $3.3 billion in a second offering this year.
(Reporting by Sagarika Jaisinghani and Shreyashi Sanyal in Bengaluru; Editing by Alex Richardson) ((Sagarika.Jaisinghani@thomsonreuters.com; within U.S. +1 646 223 8780; outside U.S. +91 80 6749 0613;))
