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Asia shares rise, U.S. futures slip

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Trump and Xi expected to speak this week

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Dollar hits six-week low before recovering slightly

By Rae Wee

SINGAPORE, June 3 (Reuters) - Asia shares edged slightly

higher on Tuesday while the dollar fell to a six-week low as

erratic U.S. trade policies clouded market sentiment and

investors turned defensive ahead of key developments later in

the week.

U.S. President Donald Trump and Chinese leader Xi Jinping

will probably speak this week, White House Press Secretary

Karoline Leavitt said on Monday, days after Trump accused

Beijing of violating an agreement to roll back tariffs and trade

restrictions.

The call between the two leaders will be closely watched by

markets, which have been roiled by tariff-induced trade tensions

between the world's two largest economies that continue to

simmer.

Data on Monday showed U.S. manufacturing contracted for a

third straight month in May and suppliers took the longest time

in nearly three years to deliver inputs amid tariffs.

"The May ISM showed tariff pressure is beginning to bite for

manufacturers who are seeing slowing activity, longer lead times

and declining inventories," said economists at Wells Fargo.

China's factory activity in May also shrank for the first

time in eight months, a private-sector survey showed on Tuesday,

indicating U.S. tariffs are starting to hurt manufacturers.

The gloomy global trade situation left U.S. futures falling

in the Asian session, failing to sustain the slight gains made

during the cash session on Wall Street overnight.

Nasdaq futures and S&P 500 futures were both

down more than 0.3% each. In Europe, EUROSTOXX 50 futures

and FTSE futures were up just 0.1%.

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

reversed early losses to last trade 0.4% higher,

while Japan's Nikkei rose 0.1%.

"Trump really does have sentiment in the palm of his hands

once again," said Matt Simpson, senior market analyst at City

Index.

"I suspect we'll hear about 'a really great call' or words

to the effect," he said, referring to the expected call between

Trump and Xi.

"But we'll need to wait for confirmation from China, who

tends to take their time on these matters. Until we get concrete

confirmation, price action could be shaky and vulnerable to

false breaks ... we also have the June 4 deadline for 'best

trade deals' from U.S. trading partners to factor in."

The Trump administration wants countries to provide their

best offer on trade negotiations by Wednesday as officials seek

to accelerate talks with multiple partners ahead of a

self-imposed deadline in just five weeks.

In China, mainland markets returned from an extended break

on a muted note, with the CSI300 blue-chip index up

0.3% while the Shanghai Composite Index gained 0.4%.

Hong Kong's Hang Seng Index jumped more than 1%,

rebounding from Monday's one-month low.

PAYROLLS ON DECK

The dollar fell to a six-week low against a basket of

currencies early on Tuesday, ahead of Friday's U.S. nonfarm

payrolls data, which will offer a timely reading on the health

of the world's largest economy.

A rise in unemployment is one of the few developments that

could get the Federal Reserve to start thinking of easing policy

again, with investors having largely given up on a cut this

month or next.

The dollar index was last marginally higher at 98.86,

trimming some of its losses from earlier in the session.

The euro similarly scaled a six-week top before

paring some of its gains to last trade at $1.1421, while

sterling dipped 0.14% to $1.3525.

A softer U.S. jobs report would be a relief for the Treasury

market, where 30-year yields continue to flirt with

the 5% barrier as investors demand a higher premium to offset

the ever-expanding supply of debt.

The Senate this week will start considering a

tax-and-spending bill that will add an estimated $3.8 trillion

to the federal government's $36.2 trillion in debt.

"The evidence suggests term premium being re-priced

considerably higher to account for U.S. fiscal, trade, credit,

and geoeconomic risks alongside some hedge against (U.S. dollar)

debasement," said Vishnu Varathan, head of macro research for

Asia ex-Japan at Mizuho.

Against the yen, the dollar rose 0.2% to

142.92.

Bank of Japan Governor Kazuo Ueda said on Tuesday the

central bank will raise interest rates once it is sufficiently

convinced that economic and price growth will re-accelerate

after a period of stagnation.

In commodities, oil prices rose on concerns about supply,

with Brent crude futures up 0.34% to $64.85 a barrel,

while U.S. crude gained 0.45% to $62.79 per barrel.

Spot gold retreated from a four-week high and last

stood at $3,362.10 an ounce.