By Agence France-Presse
A testy public interaction between Chinese Foreign Minister Wang Yi and US Secretary of State Mike Pompeo in Beijing on Monday refuelled market worries about China-US relations, which have taken a hefty knock from tit-for-tat tariffs.
"A possible train wreck on the negotiation front could completely derail global markets," said Stephen Innes, head of Asia-Pacific trading at OANDA.
"We should not underestimate the potentially destabilising effect... a weaker yuan will have on regional markets, if not global markets."
Adding to economic uncertainty on Tuesday was a bearish report from the International Monetary Fund, which lowered its forecast for Chinese economic growth in 2019 and warned that escalating trade tensions would drag on the world's second-largest economy.
The IMF's World Economic Outlook predicted China's economy would grow 6.2 percent next year, down from an previous forecast of 6.4 percent.
Both of those figures would mark the slowest rate of expansion for China since 1990.
'Sense of foreboding'
After the biggest sell-off in three months on Monday, Shanghai's stock market -- which led the retreat following a week-long public holiday -- was largely flat through Tuesday, finally closing up 0.2 percent.
"If the trade confrontation continues, the Chinese currency will go lower and that will create a whole host of problems for the global economy," Alicia Levine, chief strategist at BNY Investment Management, told Bloomberg News.
Hong Kong edged down, slipping 0.1 percent in late trading after spending much of the day in positive territory.
"The relative calm in today's Asia session belies the eerie sense of foreboding that continues to hang over equity markets," said Innes.
Markets slumped in Tokyo for a fourth consecutive session, falling 1.3 percent as traders returned from a long weekend, with stocks dragged down by a higher yen, worries over China, and a trading system glitch which affected part of the trading day.
Toyota, which announced a massive recall of its hybrid cars on Friday, plunged three percent.
Europe's main stock markets staged a modest rebound Tuesday to rise by about 0.1 percent at the opening bell.
Key figures around 0830 GMT
Hong Kong - Hang Seng: DOWN 0.1 percent at 26,172.91 (close)
Shanghai - Composite: UP 0.2 percent at 2,721.01 (close)
Tokyo - Nikkei 225: DOWN 1.3 percent at 23,469.39 (close)
London - FTSE 100: UP 0.1 percent at 7,242.57
Euro/dollar: DOWN at $1.1482 from $1.1492 at 2100 GMT on Monday
Pound/dollar: DOWN at $1.3087 from $1.3115
Dollar/yen: DOWN at 113.35 from 113.66 yen
Oil - West Texas Intermediate: UP 55 cents at $74.84 per barrel
Oil - Brent Crude: UP 63 cents at $84.54 per barrel
New York - Dow Jones: UP 0.2 percent at 26,486.78 (close).