Asian markets mostly up but trade row keeps dealers on edge

Asian markets mostly rose on Tuesday but investors remained on edge after the latest tit-for-tat tariffs in the China-US trade row, while they are now looking ahead to the Federal Reserve's next policy meeting.

While the levies had been widely expected, there are concerns about how long the dispute will last after China cancelled planned talks and said negotiations "cannot be carried out under the threat of tariffs".

Vice commerce minister Wang Shouwen said on Tuesday it was impossible to hold negotiations while Washington is imposing tariffs that are like "holding a knife to someone's throat". He accused the US of abandoning a consensus struck in May.

Fresh political uncertainty in Washington is also drawing attention, helping to drag on Wall Street, with speculation Donald Trump could fire Deputy Attorney General Rod Rosenstein over reports he suggested removing the president from office.

The developments are being closely followed because Rosenstein plays a key role in overseeing the Russia probe by Special Counsel Robert Mueller, which Trump has labelled a politically motivated "witch hunt".

His removal could deal a major blow to the investigation and possibly a constitutional crisis in Washington, leading to further political instability.

Tokyo, back after a public holiday, ended 0.3% higher, Singapore added 0.7% and Taipei gained 0.1%. There were also gains in Mumbai, Bangkok and Wellington.

But Shanghai, also returning from a long weekend, fell 0.6% by the close, while Sydney was barely moved and Manila lost more than 1%.

Hong Kong and Seoul were closed for public holidays.

In early European trade London rose 0.2%, Paris fell 0.1% and Frankfurt was flat.

Focus on Fed

Energy firms enjoyed big gains following a surge in oil prices on Monday, after the world's top producers agreed to maintain output despite pressure from Trump.

Brent soared more than 3% to a four-year high above $81 while WTI piled on 1.8% to hold around $72 after OPEC and non-OPEC nations said they were satisfied with the current market outlook. Both contracts extended gains Tuesday.

"Oil continues to hold on to astonishing gains as the latest move was helped along by headlines from OPEC's weekend meeting, as the organisation agreed to no immediate supply boosts, and last week's reports that Saudi Arabia was now comfortable with Brent at $80," said Stephen Innes, head of Asia-Pacific trade at OANDA.

The focus is now on the Fed's policy meeting which ends Wednesday, with most bets on a third interest rate rise this year. However, its statement will be pored over for clues to future increases and whether the outlook has been altered by the trade war with China.

"Inflation is above target so they can keep going on with this sort of slow normalisation," Iain Stealey, portfolio manager at JPMorgan Global Strategic Bond Fund, told Bloomberg TV.

"I don't see them stopping unless we see a pickup in trade rhetoric which actually does impact the overall economy."

Expectations that borrowing costs will continue to rise through next year is providing strong support to the dollar, which is up against the yen and most high-yielding currencies.