By Andrew Galbraith
SHANGHAI (Reuters) – Asian stocks reversed early losses on Friday as an unexpected spike in Chinese manufacturing activity offset some negativity cast by a Bloomberg news report that cast doubt on the US and China may now reach a long-term trade agreement.
China's factory activity expanded at its fastest pace in more than two years in October as export orders and production increased, a private industry survey on Friday showed.
The expansion, which beat expectations and contrary to the poor results of an official survey on Thursday, helped increase Chinese blue chips (), which rose 0.7%.
Hong Kong's Hang Seng () added 0.3% and Seoul's Kospi () rose 0.42%.
MSCI's broadest index of equities in Asia and the Pacific off Japan () reversed early losses to add 0.1[ads1]6%, after hitting three-month highs on Thursday.
The index's performance reflected a performance season that has shown companies to be more resilient than expected, said Jim McCafferty, head of Equity Research, Asia ex-Japan in Nomura.
"If you look at the microdata provided by the companies, it tells you that customers … continue to do business. So I think we're in a better state than maybe investors thought we were just a month ago," he said.
Earlier on Friday, losses mirrored declines in global stock markets, as MSCI's stock performance target in 47 countries () fell from a 20-month high following a report that cast doubt on the likelihood of a US-China trade agreement.
On Wall Street, the Dow Jones Industrial Average () fell 0.52%, the S&P 500 () lost 0.30% and the Nasdaq Composite () fell 0.14%.
Attempts by Washington and Beijing to end their bruises nearly 16 months of trade war appeared on the scene when US President Donald Trump on Thursday said the two sides would soon announce a new arena for signing a "Phase One" trade agreement after Chile canceled a scheduled summit set for mid-November.
The optimism was dampened by a Bloomberg report citing unnamed Chinese officials who cast doubt on a comprehensive long-term trade agreement is possible.
China's doubt was "Not entirely unexpected," Greg McKenna, a strategist at McKenna Macro, said in a morning note to clients, noting that the fall in stock markets was relatively small.
Retreats in the S&P 500 and the US 10-year government rate indicated some technical resistance in the market, he said.
"Regardless, today's floods of producing PMIs and then US non-farms (payrolls) tonight will be an important factor in where markets go," McKenna said.
The Institute for Supply Management will release data from its purchasing managers' survey on Friday. A separate PMI study released Thursday by the Chicago Fed showed a stronger contraction in October's manufacturing operations in Central North America.
Returns on 10-year government bonds () were 1.6962% higher than the US close of 1.691% on Thursday. The two-year return (), sensitive to market expectations of Federal Reserve policy, was 1.5319%, up from a near US close of 1.526%.
The Fed lowered interest rates for the third time this year on Wednesday to help sustain US growth, but signaled that there would be no further reductions unless the economy takes a turn for the worse.
In the foreign exchange market, the dollar was a touch stronger than the safe harbor, leaving 0.01% to 108.03.  Euro () was 0.14% higher on the day at $ 1.1166, while (), which tracks the greenback against a basket of six major rivals, was down 0.14% at 97,216 a day.
US crude () rose 0.33% to $ 54.36 per barrel and Brent crude () rose 0.13% to $ 59.70 per barrel.
eased 0.15% to $ 1,510.94 per ounce.