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Gold rebounds from stumble after crossing $4,000 mark

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S&P futures stabilise after declines on Thursday

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China expands restrictions on sales of rare earths

(Updates market levels, Japan political developments, adds

quotes.)

By Gregor Stuart Hunter

SINGAPORE, Oct 10 (Reuters) - Asian stocks fell on

Friday as escalating U.S.-China economic tensions and

uncertainty about political developments in Japan sapped

investor confidence, while commodities took a breather after

their recent charge higher.

MSCI's broadest index of Asia-Pacific shares outside Japan

fluctuated between gains and losses, and was

last down 0.4% as its gains for the week evaporated after U.S.

stocks ended the previous session with mild declines.

Shares in Hong Kong were down the most, off 1.8%,

while the Australian market slid 0.1% against a backdrop

of volatile commodity markets. In South Korea, stocks

surged 1.4%, extending gains for the region's best-performing

index.

The yen strengthened 0.2% against the dollar and the Nikkei

stock index tumbled 1%, easing off after sweeping to an

all-time closing high on Thursday, as doubts began to emerge on

whether prime minister-in-waiting Sanae Takaichi could repeat

the pro-market policies of the late Shinzo Abe.

Adding to the pressure, Japan's Komeito party will leave the

ruling coalition led by the Liberal Democratic Party (LDP),

public broadcaster NHK reported on Friday.

"Political and economic conditions in Japan are quite

different today than in 2012 when Abenomics was first launched,"

analysts at Alpine Macro wrote in a research report. "The lack

of a parliamentary majority, an independent BOJ, and voters'

anger with higher inflation should prevent Takaichi from

pursuing aggressive reflationary policies."

U.S. stock futures found a bottom in Asia, with corporate

earnings season for the third quarter due to kick off on Wall

Street next week. S&P 500 e-minis were up 0.1%, while the

U.S. dollar index, which measures the greenback's

strength against a basket of six currencies, edged 0.1% lower,

holding near a two-month high at 99.37.

Chinese stocks tumbled, with the CSI 300 down 1.4%

after Beijing expanded its rare earths export controls on

Thursday, tightening control over the sector ahead of talks

between Presidents Donald Trump and Xi Jinping.

Beijing also ramped up enforcement of its chip import

restrictions, aiming to reduce domestic technology companies'

dependence on U.S. products such as Nvidia's artificial

intelligence processors, the Financial Times reported on

Friday. Reuters could not immediately verify the report.

The yield on the benchmark 10-year Treasury bond

fell to 4.1247% compared with its U.S. close of 4.148% on

Thursday.

Traders' expectations that the Federal Reserve will ease

policy at its meeting on October 29 remain solid, with Fed funds

futures pricing a 94.6% probability of a 25-basis-point rate

cut, according to the CME Group's FedWatch tool.

Regional markets remain on track for one of their best years

in a decade, firmly outstripping gains for U.S. counterparts as

President Trump's package of economic policies and tariffs

prompts a surge of orders across the region to meet booming

demand for AI-linked technology hardware.

"Despite strong performance this year and significant

improvement in sentiment, positioning remains light, and flows

are just returning," HSBC global head of market strategy Murat

Ulgen wrote in a research report.

TAKAICHI WALKS A TIGHTROPE

Japan's TOPIX tumbled 1.9% after Finance Minister

Katsunobu Kato voiced concern about "one-sided, rapid moves in

the foreign exchange market" that have pushed the yen 3.5%

weaker against the dollar since Takaichi's election this

weekend.

Data earlier in the day showed wholesale prices rose 2.7% in

the year to September, in a sign of persistent cost pressure

that will keep markets braced for a possible rate hike by the

Bank of Japan when it meets on October 30.

The dollar slid 0.2% against the yen to 152.73,

around the weakest level for the Japanese currency since

February, after Takaichi said on Thursday that the country's

central bank is responsible for setting monetary policy but that

any decision it makes must align with the government's goal.

Traders say her pledge to reassert government sway over the

central bank may face a reality check from a weak yen and

domestic political considerations, however.

"The market expects the Japanese government to adopt

expansionary fiscal policies," analysts from Bank of America

wrote in a research report. "However, considerable uncertainty

remains about the specifics of the policies up for debate, as

well as the extent of the fiscal expansion."

COMMODITIES IN FOCUS

Gold edged down 0.1% to $3,970.43, extending declines

after snapping a four-day winning streak on Thursday, shortly

after breaching the $4,000 mark for the first time and with

evidence of the ebullience spilling across into other precious

metals.

Spot silver was up 1.7% at $49.94, retesting the $50

mark after crossing above the boundary for the first time on

Thursday.

In energy markets, Brent crude slid 0.5% to $64.92

per barrel, after Israel's government ratified a ceasefire with

the Palestinian militant group Hamas on Friday, clearing the way

to suspend hostilities in Gaza within 24 hours and free Israeli

hostages held there shortly after that.