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Asia: Markets turn lower, pound holds up against dollar

[HONG KONG] Asian markets edged down on Tuesday as profit-takers stepped in following a recent run-up, while the pound maintained gains on hopes Britain will avoid crashing out of the European Union.

While there were few catalysts to drive business and Wall Street was closed for a holiday investors are keeping tabs on developments in various issues including the US government shutdown, Brexit and China's stuttering economy.

The optimism surrounding China-US trade talks was jolted by a Bloomberg News report that said the two sides were struggling to reach agreement on the crucial matter of intellectual property, which is a key source of anger in Washington.

While headlines regarding talks earlier this month were upbeat, and eyes turn to another meeting including China's top negotiator Liu He at the end of January, the Bloomberg story, referencing unnamed sources, provided a reality check.

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In early trade Hong Kong and Shanghai each dipped 0.5 per cent, while Tokyo went into the break 0.1 per cent lower.

Sydney also slipped 0.5 per cent, Singapore shed 0.2 per cent and Seoul was 0.4 per cent lower while Wellington and Taipei were also well down.

Concerns about the outlook led the International Monetary Fund to lower its growth forecasts for the global economy, citing the trade row, Brexit and other problems.

On currency markets the pound edged up slightly against the dollar, having bounced on Monday after British Prime Minister Theresa May said she would try to hammer out changes to her Brexit deal that was roundly rejected by MPs last week.

While there is no plan in place to leave the EU on March 29, markets are confident lawmakers will avoid a damaging no-deal Brexit, with options being touted being a delay to the leaving date and another referendum.

The pound "has been helped by ongoing optimism that a hard Brexit will be avoided on 29th March", said Ray Attrill, strategist at National Australia Bank.

He pointed out that MPs from both sides of the aisle had proposed a bill pushing for a delay if an agreement cannot be agreed in parliament by February 26.

"There's a good chance this gets up. If so, it further flattens the tail risk of a hard Brexit on March 29, though note all 27 EU nations will need to agree to an extension, so it wouldn't eliminate the risk completely."

Oil prices extended Monday's losses that came in response to data showing China's economy grew last year at its slowest pace for almost three decades.

AFP