Worries about confrontations between the two largest economies in the world eclipsed Chinese economic data, which showed it economy is gradually recovering from the shock of the coronavirus outbreak.
With China the first to relax lockdowns, global investors are closely watching it for clues on how long demand will take to bounce back, as other countries begin to ease their own anti-virus measures.
MSCI’s broadest index of Asia-Pacific shares outside Japan were little changed, with gains in Australia offset by falls in Hong Kong.
Japan’s Nikkei dipped 0.3% while mainland Chinese shares also ticked lower.
US S&P500 futures dipped 0.15% after the index gained 1.15% the previous day, recovering from a three-week low.
While many analysts regarded the drop as a natural correction after a fast rally since mid-March, they are also increasingly worried about US-China relations as US President Donald Trump blames China for the disease that killed more than 85,000 Americans.
Trump signalled a further deterioration of his relationship with China over the novel coronavirus, saying he has no interest in speaking to President Xi Jinping right now.
He went so far as to suggest he could even cut ties with the world’s second-largest economy, a day after US federal pension fund delayed investment in Chinese shares in the wake of White House pressure.
“The US-China trade war was the biggest theme for markets last year. It will be a big concern if the conflict escalates beyond trade,” said Takeo Kamai, head of execution at CLSA.
China’s industrial output rose 3.9% in April from a year earlier, exceeding expectations for a 1.5% rise and expanding for the first time this year as the world’s second-largest economy slowly emerges from its coronavirus lockdown.
But retail sales remained weak as unemployment rose.
“On the whole, the Chinese economy is improving and the industrial output figures suggest the GDP could be positive in April-June,” said Wang Shenshen, senior strategist at Mizuho Securities.
“But concerns about the US-China relations are weighing on markets.”
In the currency market, the dollar steadied near a three-week high as Sino-US tensions and worries about a second wave of coronavirus infections rattled investors.
In Asia, major currencies were little changed with the euro changing hands at $1.0806 and the yen at 107.19 per dollar.
Oil prices were mixed after big gains a day earlier when the International Energy Agency (IEA) predicted crude stockpiles would start to shrink in second-half 2020 after surging while the coronavirus pandemic slashed fuel demand.
US crude futures traded 0.4% higher at $27.67 per barrel.