[TOKYO] Asian stocks surrendered earlier gains and dipped on Thursday, with Chinese markets fixed firmly on risks from the Sino-US trade war and taking little comfort from an apparent easing in business tensions in North America and Europe.

The leaders of the United States and Canada expressed optimism on Wednesday that NAFTA negotiations would meet a Friday deadline for a deal, days after the US and Mexico reached a bilateral agreement.

But MSCI's broadest index of Asia-Pacific shares outside Japan dropped 0.2 per cent, with broad gains across the region offset by losses in China.

The Shanghai Composite Index slid 0.8 per cent and Hong Kong's Hang Seng fell 0.7 per cent.

"Investors are relatively pessimistic and cautious for now amid low levels of trading volume, as there are still concerns over the development of the Sino-US trade spat," said Yan Kaiwen, an analyst with China Fortune Securities.

US tariffs on another US$200 billion of Chinese goods are expected to take effect later next month.

Australian stocks rose 0.1 per cent. Japan's Nikkei initially touched a three-month high following gains on Wall Street but pared gains and was last up a modest 0.05 per cent.

South Korea's Kospi was 0.1 per cent higher.

Major South Korean steelmakers such as Posco and Hyundai Steel gained after news that President Donald Trump signed a proclamation permitting targeted relief from steel and aluminium quotas from countries including South Korea.

US shares extended their rally on Wednesday, with the S&P 500 and the Nasdaq hitting record highs for a fourth straight session as technology stocks pushed indexes higher and promising Nafta negotiations boosted investor confidence.

Canada rejoined the talks to modernise the 24-year-old Nafta after Mexico and the United States announced a bilateral trade deal on Monday, which had helped global equities begin the week on stronger footing.

The White House has said it wants to settle Nafta before negotiating with China.

The pound surged as fears of a 'hard Brexit' eased after the European Union's chief exit negotiator signalled an accommodative stance towards London in ongoing talks.

Sterling rose to a 3-1/2-week high US$1.3039, extending its gains after surging more than one per cent overnight.

The US dollar index against a basket of six major currencies struggled near a four-week low of 94.434 plumbed on Tuesday, weighed by the pound's rally.

The greenback has also been on the defensive this week with safe-haven demand for the currency diminishing in the wake of improving risk sentiment in broader markets.

The euro was a shade lower at US$1.1699 after edging up 0.1 per cent the previous day. The dollar was nearly flat at 111.62 yen after rising 0.4 per cent overnight.

The Chinese yuan dipped 0.15 per cent to 6.8301 per US dollar in early onshore trade on Thursday.

Investors kept a wary eye on the Turkish lira, which retreated to a two-week trough on Wednesday after Moody's downgraded 20 Turkish banks in a further blow to a country already gripped by a financial crisis and stuck in a diplomatic row with the United States.

Other struggling emerging market currencies in focus included Argentina's peso. The peso tumbled overnight to a record low against the dollar after Argentine President Mauricio Macri asked the International Monetary Fund (IMF) for early assistance, alarming investors.

The IMF said it was studying the request from Argentina to speed up disbursement of the US$50 billion loan programme.

In commodities, Brent crude futures rose 0.1 per cent to US$77.20 per barrel and US crude futures climbed 0.2 per cent to US$69.64 per barrel.

Oil contracts had risen more than one per cent on Wednesday, supported by a drawdown in US crude and gasoline stocks and as US sanctions reduced Iranian crude shipments.

REUTERS