U.S. President Donald Trump sharply escalated trade tensions between the world's two largest economies with tweeted comments on Sunday that talks toward a trade deal with China were proceeding "too slowly", and that he would raise tariffs on $200 billion of goods to 25 percent on Friday from 10 percent.
He also said he would target a further $325 billion of Chinese goods with 25 percent tariffs "shortly".
The tweets upended the previously calm market mood that had benefited from signs of robust growth in China and the United States, and from comments from Trump and other senior U.S. officials that trade talks were going well.
The Wall Street Journal reported on Monday that China was considering cancelling trade talks scheduled for this week following Trump's threats.
"President Trump just killed the trade deal for a while and that has implications for Chinese and global growth, it also has implications for a number of assets," Greg McKenna, strategist at McKenna Macro said in a morning note to clients.
In early Asian trade, MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.2 percent.
Australian shares were 0.6 percent lower in early trade.
Japanese financial markets remain closed until Tuesday for a national holiday, but Nikkei 225 futures dropped 1.8 percent to 22,085.
E-Mini futures for the S&P 500 slid 1.7 percent after the U.S. payroll data had helped to lift Wall Street stocks on Friday.
Investors around Asia will be keeping an eye on Chinese markets, which open at 0130 following a three-day national holiday last week.
With an imminent trade deal on hold, Treasury futures jumped 14 ticks. Data from CME Group showed the market sees a nearly 58 percent chance of a Fed rate cut by the end of the year.
As investors flocked to the safe-haven yen, the dollar dropped 0.4 percent against the Japanese currency to 110.67.
But China's offshore yuan plunged, weakening to 6.8108 per dollar, its weakest level since January 23.
The single currency was down 0.18 percent on the day at $1.1180. The dollar index, which tracks the greenback against a basket of six major rivals, was up at 97.574.
In commodity markets, U.S. crude plunged 2.15 percent at $60.61 a barrel and Brent crude fell 1.78 percent to $69.59 per barrel.
Spot gold jumped 0.4 percent to trade at $1,283.65 per ounce. - Reuters
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