(Corrects dollar index quotation in the 12th paragraph)
* Asian stocks flat, Nikkei up 1.1 pct in catch-up after holiday
* Investors cautiously optimistic on U.S.-China trade deals
* Dollar supported broadly, eyes on govt spending negotiations
* Asian stock markets: tmsnrt.rs/2zpUAr4
By Hideyuki Sano
TOKYO, Feb 12 (Reuters) - Asian shares barely budged on Tuesday with investors looking to a new round of Sino-U.S. trade talks as the world’s two largest economies try to resolve a tariff dispute that has put a dent on global growth and corporate earnings.
MSCI’s broadest index of Asia-Pacific shares outside Japan was unchanged in early trade. Japan’s Nikkei was up 1.1 percent after a market holiday on Monday.
U.S. and Chinese officials expressed hopes on Monday that a new round of talks would bring them closer to easing their months-long trade war.
Beijing and Washington are trying to hammer out a deal before a March 1 deadline, without which U.S. tariffs on $200 billion worth of Chinese imports are scheduled to increase to 25 percent from 10 percent.
“There will be no winner in a trade war. So at some point they will likely strike a deal,” said Mutsumi Kagawa, chief global strategist at Rakuten Securities.
The trade dispute has already started to impact global growth, hitting businesses confidence, factory activity and disrupting supply chains. The worry is that a protracted Sino-U.S. tariff row could severely hurt corporate earnings globally.
Analysts are now expecting U.S. corporate earnings for the current quarter to drop 0.2 percent from last year, which would mark the first contraction since the second quarter of 2016.
In the currency market, the dollar held firm, having gained for eight straight sessions against a basket of six major currencies until Monday, its longest rally in two years.
Although the Federal Reserve’s dovish turn dented the dollar earlier this year, some analysts noted the U.S. currency still has the highest yield among major peers and that the Fed continues to shrink its balance sheet.
“We see the dollar’s strength essentially stemming from the Fed’s balance sheet reduction,” said Makoto Noji, chief currency and foreign bond strategist at SMBC Nikko Securities.
Growing evidence of a loss of momentum in the global economy has also lifted the U.S. currency, most recently led by the European Commission’s downgrade of growth in Europe, making the dollar a better investment option by default.
The dollar’s index rose to its highest level in almost three months, 97.123, on Monday. It last stood at 97.062.
In contrast, the euro dropped to as low as $1.1267 on Monday, its weakest in 2-1/2 months, and last stood at $1.1278 .
The dollar popped up to a six-week high of 110.51 yen .
While the dollar drew support from the relative strength of the U.S. economy, its near-term direction hinges on the congressional negotiation on government spending.
A Democratic Senator said on Monday negotiators were working into the night in hopes of striking a deal on funding border security programs through Sept. 30 and averting another round of federal agency shutdowns.
The talks resumed on Monday after having broken down over the weekend.
Oil prices ticked up slightly after falls on Monday as traders weigh support from OPEC-led supply restraint and a slowdown in the global economy.
U.S. crude futures traded at $52.55 per barrel, up 0.27 percent. (Editing by Shri Navaratnam)