* Asian stock markets: tmsnrt.rs/2zpUAr4
* Asia ex-Japan hits 4-month low, China shares drop
* Yen, sovereign bonds buoyed by safe-haven bid
* Pound under pressure on reports PM May to quit
* Oil prices nurse losses as inventories build
By Wayne Cole
SYDNEY, May 23 (Reuters) - Asian shares broke support and caved to a four-month low on Thursday, as concerns grew that the Sino-U.S. trade conflict was fast morphing into a prolonged technology cold war between the world’s two largest economies.
Late Wednesday, Reuters reported the U.S. administration was considering Huawei-like sanctions on Chinese video surveillance firm Hikvision over the country’s treatment of its Uighur Muslim minority, according to a person briefed on the matter.
After the United States placed Huawei Technologies on a trade blacklist last week, British chip designer ARM has halted relations with Huawei in order to comply with the blockade.
Digging the knife in, the U.S. military said it sent two Navy ships through the Taiwan Strait on Wednesday.
“Both the U.S. and China appear to be preparing for a prolonged period of trade conflict,” wrote analysts at Nomura in a note on the standoff.
“We think domestic pressures and constraints will drive both sides towards further escalation,” they warned. “Without a clear way forward during an intensifying 2020 U.S. presidential election, we see a rising risk that tariffs will remain in effect through end 2020.”
Shanghai blue chips shed 1.2% in response to be near their lowest since February. An index of major telecoms firms fell 2.7% as suppliers to Huawei suffered.
MSCI’s broadest index of Asia-Pacific shares outside Japan touched its lowest in four months and was last down 0.7%.
Japan’s Nikkei lost 0.7% and South Korea 0.3%. Also feeling the pain, E-Mini futures for the S&P 500 dropped 0.4%.
India’s market was expected to buck the trend as media reported Prime Minister Narendra Modi’s party was well ahead in an election vote count.
Treasury Secretary Steven Mnuchin said on Wednesday it would be at least a month before the United States would enact proposed tariffs on $300 billion in Chinese imports as it studies the impact on American consumers.
Minutes of the U.S. Federal Reserve’s last meeting out on Wednesday underlined its readiness to be patient on policy “for some time” given the uncertain global outlook.
The chance of a rate cut seemed to diminish as many Fed policy makers saw recent weakness in inflation as “transitory”, though the latest escalation in the trade war means markets are still wagering on an eventual easing.
Yields on two-year Treasuries of 2.237% are also well below the current effective funds rate at 2.39%.
In currencies, constant trade friction saw the safe haven yen in demand again as the dollar dipped to 110.24 yen and away from the week’s top of 110.67.
The dollar fared better on the euro at $1.1151 and was steady on a basket of currencies at 98.111.
Sterling had troubles of its own at $1.2646, having hit a four-month low of $1.2625 overnight.
British Prime Minister Theresa May came under intense pressure after her latest Brexit gambit backfired and fuelled calls for her to quit.
Prominent Brexit supporter Andrea Leadsom resigned from the government on Wednesday and British media reported May could announce her departure date as early as Friday.
“Uncertainty is the only clear certainty in the near term,” said Westpac macro strategist Tim Riddell.
“The risk of a hard-Brexit replacement for May has increased the risks of a hard Brexit result or even a forced no-deal exit,” he added. “Such an event would likely force GBP lower, increase risks of assets sliding and BOE (Bank of England) taking counter action to support assets.”
In commodity markets, spot gold was little changed at $1,273.12 per ounce.
Oil prices added to losses suffered overnight after an unexpected build in U.S. crude inventories compounded investor worries about demand.
U.S. crude was last down 33 cents at $61.09 a barrel, while Brent crude futures lost 40 cents to $70.59.
Editing by Sam Holmes and Jacqueline Wong