HONG KONG: Fresh trade worries and uncertainty about the Federal Reserve's plans for cutting interest rates weighed on Asian markets Wednesday while fears of a hard Brexit kept the pound wallowing at more than two-year lows.

Oil prices were also struggling owing to questions about the outlook for the global economy, the China-US tariffs stand-off and a stronger dollar.

After last week's optimism sparked by Fed boss Jerome Powell's nod to a cut in rates, investors were taking a more sober view following a number of positive readings on the US economy including on retail sales.

The readings -- while coming alongside figures showing a drop in the manufacturing sector -- revived worries that the Fed will only make one small reduction in borrowing costs this month, and possibly not make any more this year.

The possibility of rates staying slightly elevated boosted the dollar against the yen, euro and pound on Tuesday and held up in early trade Wednesday.

The pound was taking another hit with the possibility of a no-deal Brexit growing ever more likely as the two contenders to become prime minister slug it out by trying to take increasingly tough lines with the EU. The sterling is now at its lowest level since April 2017.

"We should wait for the new PM to be crowned and settled first before making big calls on where Brexit is going, but the uncertainty will continue to weigh," said Neil Wilson, chief market analyst at Markets.com.

The dollar also climbed against most higher-yielding, riskier currencies, jumping 0.8 percent against the Mexican peso, 0.3 percent on the Australian dollar and 0.2 percent versus South Korea's won.

Regional equity markets were also in the red, with confidence jolted by comments from Donald Trump that revived trade tensions with China.

- 'Fragile and uneasy' -

Hong Kong, Shanghai and Tokyo were all well down, while there were also losses in Singapore, Taipei, Manila and Jakarta with Seoul off 0.9 percent as South Korea's trade stand-off with Japan drags on.

Sydney, Wellington and Mumbai were slightly higher.

In early European trade, London and Paris fell 0.1 percent and Frankfurt dipped 0.2 percent.

Trump said Washington and Beijing were still a long way from a trade deal and that he still could impose higher tariffs on Chinese imports if he did not get his way.

His remarks, hitting out at what he says is a lack of follow-through from Beijing on promises to buy more farm goods, came just as high-level talks were due to take place this week, though a face-to-face has still not been agreed.

There had been hopes of some sort of progress after Trump and Chinese leader Xi Jinping agreed at the G20 last month to restart talks.

"President Trump reminded investors just how fragile and uneasy the post-G20 trade war truce" is, said Stephen Innes at Vanguard Markets.

"It seems we are in this never-ending cycle of one step forward and two steps back."

And Tapas Strickland, senior analyst at National Australia Bank, said there were "no signs that tensions will abate anytime soon".

"China's commerce minister, who is part of the trade negotiations, implied China is preparing for a protracted trade spat and is in no hurry to reach a deal at the expense of losing face," he said in a note.

On oil markets, both main contracts struggled to recover after tumbling more than three percent on Tuesday as the trade row returned, the dollar rose and tensions between the US and Iran appeared to be easing.

US Secretary of State Mike Pompeo said Tehran was open to talks if Washington eased sanctions preventing it from selling oil, which is crippling the Islamic Republic's economy.

The developments were the first sign of an easing in the standoff that has raised worries of a conflagration in the tinderbox Middle East. —AFP