TOKYO: Asian stocks and Wall Street futures inched higher on Tuesday as some investors held out hope that Britain still had a chance to avoid a messy exit from the European Union at key negotiations this week.
MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.1per cent. South Korean shares rose 0.21per cent, while Japan's Nikkei stock index was up 1.74per cent.
Capping broader gains, however, was a perceived lack of progress coming out of U.S.-China trade negotiations.
Reports of a "Phase 1" trade deal between the United States and China last week had earlier cheered markets but the dearth of details around the agreement has since curbed this enthusiasm with oil prices extending declines, Chinese stocks weaker and the safe-haven yen holding gains versus dollar.
The focus has now shifted to Europe where officials from Britain and the EU will meet at a make-or-break summit on Thursday and Friday that will determine whether or not Britain is headed for a so-called no-deal Brexit.
"Given the parliamentary intervention, I would say the chance of a no-deal Brexit is around 10per cent to 20per cent," said Shane Oliver, head of investment strategy and chief economist at AMP Capital Investors in Sydney.
"If there is a deal, sterling would rally and risk assets would rally, but the reaction could be limited to a day."
U.S. stock futures rose 0.23per cent on Tuesday in Asia after the S&P 500 ended 0.14per cent lower.
Traders, however, cautioned that sentiment remains fragile because the outcome of Brexit talks is far from certain and the U.S.-China trade war remains a risk to global growth.
British Prime Minister Boris Johnson wants to strike an exit deal at an EU summit on Thursday and Friday to allow an orderly departure on Oct. 31.
The main sticking point remains the border between EU member Ireland and Northern Ireland, which belongs to the UK. Some EU politicians have expressed guarded optimism that a deal can be reached.
However, diplomats from the EU have indicated they are pessimistic about Johnson's proposed solution for the border and want more concessions.
In the currency market, sterling edged up to US$1.2620, below a three-month high of US$1.2708.
The yen , often considered a safe haven in times of economic uncertainty, held steady at 108.35 versus the dollar.
A perceived lack of progress in resolving a prolonged trade row between the United States and China also weighed on investor confidence.
Chinese stocks fell 0.38per cent on Tuesday, led by declines in the technology sector. In the onshore market, the yuan traded at 7.0654 per dollar, weaker than a one-month high of 7.0494 reached on Monday.
The United States agreed to delay an Oct. 15 increase in tariffs on Chinese goods while Beijing said it would buy as much as US$50 billion of U.S. agricultural products after tense negotiations last week.
However, Washington has left in place tariffs on hundreds of billions of dollars of Chinese goods.
Trade experts and China market analysts say chances are high that Washington and Beijing will fail to agree on any specifics - as happened in May - in time for a mid-November meeting between Trump and Chinese President Xi Jinping.
U.S. crude fell 0.49per cent to US$53.33 per barrel following a 2per cent decline overnight due to worries that global energy demand will remain weak.
Brent crude also fell 0.42per cent to US$59.10 per barrel.
By early last week, hedge funds had become the most bearish towards petroleum prices since the start of the year, according to an analysis of position records published by the U.S. Commodity Futures Trading Commission and ICE Futures Europe.
(Editing by Sam Holmes)