By Swati Pandey
SYDNEY (Reuters) – Asian stocks fell on Wednesday and bonds rallied as investor sentiment soured over growing worries about world growth with trade Tensions between the US and China shows no signs of relief.
MSCI's widest index for Asia-Pacific shares outside Japan fell 0.5% after three straight days of gains. Chinese stocks started at the back of the foot, but jumped off early losses to be marginally higher. Australian shares ended 0.7% lower while Japan's faltered 1
In one indication, US markets will fall again on Wednesday, E-Minis for it stumbled 0.3%. In early European trade, the pan-region fell 0.7%, which was German, while those for London and France increased 0.6% each.
Risk aversion has increased globally in recent days, as fears of world decline occurred among disappointing macro data in large economies. Gains for Euro-skeptic parties in EU elections, as well as a snap survey in Greece and political unrest in Austria have added to the gloomy outlook.
Italy's dispute with the EU Commission over its budget is also a major overhang for the world market.  In Asia, focus is still on the ongoing Chinese-American trade war. US President Donald Trump said Monday that Washington was not yet willing to enter into an agreement with China. In response, Chinese newspapers announced on Wednesday Beijing is ready to use rare earths to repel the United States.
The tariff is not limited to China. Trump has also pushed Japan to reduce its trade disruption with the United States.
The spectrum of long-term trade friction drove the US 10-year returns of about 10 basis points below its 3-month rates, an inversion that is usually seen as a leading indicator of a recession. The German Bund yields are also on a sliding slope.
"What I see as more consistent is that usually when the yield curve inverts you get the central bank easing. So the issue of recession would be, would the US Fed be easy enough to avoid a recession?" said Chris Rand, Sydney-based interest portfolio manager at Nikko Asset Management.
"My reading of what is happening at the moment is that US economic data seems to flirt away, and the market is beginning to tell us that interest rates will eventually come," says Rands.
US prices futures are pricing in two cut off the Federal Reserve in the middle of next year to help support the country's economy.
Data this week showed that a US production activity gauge fell unexpectedly in May from last month.
Previously, disappointing readings on US production follow. and industrial production, adds Rands.
"That you have a little more noise around the commercial war now, while production is rolling over, makes people think that things are a little worse than they had expected," he said. Citi reckons sanctions against China's Huawei and other technology companies as part of the tariff struggle, could undermine global productivity growth.
"Technological rivalry is here to stay," a Citi analyst Johanna Chua in a note adds "it is difficult to be constructive (on) venture in Asia at this time."
"We maintain a bias to be a long US dollar Asia … page growth is likely to outweigh inflation concerns, we expect Asian central banks to continue to be on the welcoming side. "
In currencies, activity was subdued.
There was a tap lower of 97,905, but well over a recent two week trough of 97,547.
The euro was unchanged at $ 1.11119 after two straight days of fall while British Pounds held $ 1,2656.
In commodity markets, oil prices were suppressed on Wednesday when it was worried that Chinese-US trade war might trigger a global economic downturn, despite the risk of lack of supply from US floods and political tensions in the Middle East. [O/R]
was last from 51 cents at $ 69.60 a barrel, while it was relieved 62 cents to $ 58.52 a barrel.