June 1, 2018 / 5:44 AM / in 21 days

GLOBAL MARKETS-Asia stocks recover from earlier losses, Europe seen firm

* MSCI Asia-Pacific index up 0.1 pct, Nikkei gains 0.2 pct

* Korea, Japan stocks rise, European stocks seen opening higher

* Chinese stocks volatile on MSCI-inclusion day

* U.S. tariff moves reignite global trade conflict worries

By Shinichi Saoshiro

TOKYO, June 1 (Reuters) - Asian equities recovered from early weakness on Friday as a lower yen supported Japanese stocks and firm exports boosted South Korean markets. Still, rekindled concerns about U.S. trade policies limited regional gains.

Spreadbetters expect European stocks to follow Asia’s firmer tone and have marked in a modest rise of 0.15 percent for Britain’s FTSE and gains of 0.5 percent for Germany’s DAX and France’s CAC.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.1 percent but the index was still down roughly 0.6 percent for the week, during which it hit a six-week low on concerns about Italy’s struggle to form a government.

A fall on Wall Street on Thursday after the United States said it would impose tariffs on aluminium and steel imports from Canada, Mexico and the European Union, set the initial tone in Asia.

Fears of a global trade conflict, which had partially receded in past weeks, were reignited as Washington’s allies retaliated against the U.S. measures.

However, regional sentiment recovered somewhat with South Korea’s KOSPI rising 0.7 percent on upbeat export data and Japan’s Nikkei advancing 0.2 percent off the back of yen weakness against the dollar.

Still, equity markets are likely to be weighed down, said Soichiro Monji, senior economist at Daiwa SB Investments in Tokyo, “as the United States has opened up a new point of contention on the trade front by getting involved with the European Union.”

“President Trump has not accomplished very much in terms of trade issues and is likely to remain vocal with the U.S. midterm elections coming up,” he said.

The Shanghai Composite Index fell 0.5 percent and the blue-chip CSI300 index dropped 0.75 percent.

Traders said Chinese stocks were volatile as the long-awaited inclusion of large-cap shares from the country in MSCI’s emerging markets index had failed to buoy the market or attract any immediate flows of foreign money.

On Friday, about 230 yuan-denominated mainland A-shares were included in MSCI index for the first time. Bank of America Merrill Lynch estimates China’s A-shares could account for some 30 percent of MSCI’s emerging market index once they are fully included.

“It took Korea and Taiwan some six to nine years to gain full weighting. It may take (China’s) A-shares longer in our view due to size, access and capital mobility constraints,” wrote equity strategists at Bank of America Merrill Lynch.

The Canadian dollar and the Mexican peso were on the defensive, weighed down by the U.S. decision to impose tariffs.

The euro was little changed at $1.1679, holding onto modest gains made on relief overnight as Italy’s anti-establishment parties reached a deal to resurrect their proposed coalition government.

The deal averted the prospect of a snap election, which had rattled global markets earlier this week and sent the euro to a 10-month low of $1.1510 on Tuesday.

The dollar climbed 0.3 percent to 109.150 yen, supported by U.S. yields reversing their overnight declines.

The 10-year Treasury yield was at 2.867 percent after brushing a 1-1/2-month low of 2.759 percent on Tuesday.

Brent crude dipped 0.1 percent to $77.49 a barrel. U.S. crude was down 0.25 percent at $66.87 a barrel.

Prices have swerved between a three-week low of $$74.49 and $78.75 this week on speculation about output by major oil-producing nations. Brent’s premium over U.S. crude reached its widest since March 2015 this week.

Editing by Sam Holmes and Neil Fullick

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