Asian markets fell Monday as data showed that China's economic growth slowed in the second quarter on the brink of a potential trade war with the United States.

 

After a positive end to last week's roller-coaster ride for equities, investors shifted back into defensive mode in early business, with concerns about the impact of tit-for-tat tariffs on the world's top two economies.

 

Beijing said growth in April-June came in at 6.7 percent, in line with forecasts in an AFP survey and better than the government's annual target but a shade down from the previous three months.

 

While the reading refers to the three months before US levies on billions of dollars of Chinese goods were imposed, observers had already said the country was likely to struggle with a trade face-off as leaders battle a debt mountain and pollution.

 

At the same time the yuan and local stock markets are tumbling.

 

News Friday that China's trade surplus with the US, a major cause of Trump's anger, hit a record in June has further fuelled tensions.

 

Mao Shengyong, a spokesman for the national statistics bureau, warned that the trade row "will have an impact on the economies of both China and the United States, and now that the world economy is deeply integrated, and the industrial chain is globalised, many related countries will also be affected".

 

Shanghai closed down 0.6 percent and Hong Kong lost 0.2 percent in the afternoon, while Sydney eased 0.4 percent. Singapore, Seoul, Wellington and Taipei were also lower. Tokyo was closed for a public holiday.

 

- 'Conflict and chaos' -There are hopes that Beijing and Washington can reach an agreement to avert an all-out trade war, with some experts optimistic at China's relatively muted response to Donald Trump's threats of further tariffs on $200 billion of goods.

 

"Should the US eventually move ahead with these tariffs, China could not escalate on an even basis given China only imports roughly $130 billion annually from the US, suggesting they would either need to levy higher trade tariffs on a small number of selected products or take the least attractive measure of tactically weakening the yuan," said Stephen Innes, head of Asia-Pacific trading at OANDA.

 

"Hence the lack of immediate response from China, as administrators will be ultra-careful not to send the wrong signal, triggering another market melt in China."

 

On Monday EU Council President Donald Tusk called on the United States, China and Russia to cool tensions, warning they could spiral into "conflict and chaos".

 

On currency markets the pound held its own against the dollar after fluctuating on Friday in reaction to an interview in which Trump hit out at Prime Minister Theresa May's handling of Brexit and appeared to dampen hopes of a future trade deal.

 

He later took the edge off his remarks.

 

Traders are now looking ahead to congressional testimony by Federal Reserve chief Jerome Powell, hoping for some insight on its plans for raising interest rates in light of the trade war.

 

In early trade London rose 0.1 percent, Paris was flat and Frankfurt lost 0.1 percent.

 

- Key figures at 0720 GMT -Hong Kong - Hang Seng: DOWN 0.2 percent at 28,471.94

 

Shanghai - Composite: DOWN 0.6 percent at 2,814.04 (close)

 

Tokyo - Nikkei 225: Closed for a public holiday

 

London - FTSE 100: UP 0.1 percent at 7666.66

 

Dollar/yen: UP at 112.36 yen from 112.35 yen at 2100 GMT Friday

 

Euro/dollar: UP at $1.1701 from $1.1686 

 

Pound/dollar: UP at $1.3250 from $1.3236

 

Oil - West Texas Intermediate: DOWN 58 cents at $70.43 per barrel 

 

Oil - Brent Crude: DOWN 71 cents at $74.62 per barrel

 

New York - Dow: UP 0.4 percent at 25,019.41 (close)