HONG KONG: Asian markets and the dollar were jolted Wednesday as news that Donald Trump's top economic adviser had resigned revived trade war fears, though the losses were tempered by North Korea's offer of denuclearisation talks.
Investors, already on edge over expected US interest rate hikes, have been rattled further since the US president last week unveiled controversial tariffs on steel and aluminium imports as part of his "America First" agenda.
Equities initially plunged on Thursday's announcement, which has been condemned by business leaders and foreign governments, before rebounding this week as dealers bet the final measures would not be as bad as initially thought.
However, analysts said news that Gary Cohn -- who had fought against the tariffs -- had stepped down could leave the field open for protectionist hawks to dictate policy, ramping up the chances of a global trade war.
"His resignation increased the risk tenfold that President Trump will follow through with far-reaching trade tariffs given that Cohn was said to be remaining in his role to convince Trump to reverse his trade policy views, or at least temper them," said Stephen Innes, head of Asia-Pacific trading at OANDA.
US bond yields sank as traders rushed into safe assets, with the Japanese yen also rising against the dollar.
"Policy uncertainty has underpinned a lot of the market's recent volatility," Stephen Wood, chief market strategist for North America at Russell Investments in New York, told Bloomberg News.
"This speaks to the instability. He's an advocate for free-trade policy so there would be expectation that protectionist voices would be more representative in the administration."
- Olive branch -
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Regional equities started the day in negative territory but the losses were tempered in some markets while other rebounded as investors also absorbed Pyongyang's olive branch to South Korea and the US, saying it was open to discussing its nuclear programme with the two.
Seoul announced the two Koreas would hold a historic summit next month -- and that the North's leader Kim Jong Un was ready to halt provocative missile and nuclear tests before sitting down with its old enemies.
Trump, who has said the US would not talk unless Kim was prepared to give up his weapons, welcomed the breakthrough offer.
"It's important for markets for a number of reasons," said Greg McKenna, chief market strategist at AxiTrader. "It reduces a point of tensions between the US and China and could lead to more... cooperation as President Trump seeks to rebalance the US-China trade deficit."
Seoul climbed 0.7 percent, while the won was up by a similar amount against the dollar.
Tokyo was down 0.2 percent by the break, but Kobe Steel plunged 5.2 percent a day after its CEO resigned -- leaving no successor -- after the firm revealed widespread submission of false strength and quality data for products shipped to hundreds of clients worldwide.
Hong Kong climbed 0.4 percent and Shanghai gained 0.5 percent, with Taipei 0.3 percent up.
Sydney, however, dropped 0.5 percent as data showed Australia's economic growth slowed in the final three months of last year and missed expectations.
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