Global financial markets tumbled on Monday after United States (US) President Donald Trump unexpectedly jacked up pressure on China to reach a trade deal, saying he would hike US tariffs on Chinese goods this week.

Equity markets, which had been largely expecting a trade accord, fell sharply across export-reliant Asia as further talks were thrown into doubt.

Chinese shares plunged more than four per cent at one point, while US stock market futures fell close to two per cent. Oil prices plunged and the Chinese yuan tumbled.

Trump sharply escalated tensions between the world's two largest economies with tweeted comments on Sunday that trade talks with China were proceeding “too slowly”, and that he would raise tariffs on $200 billion of Chinese goods to 25 per cent on Friday from 10 per cent.

He also said he would target a further $325 billion of Chinese goods with 25 per cent tariffs “shortly”.

The tweets upended the previously calm market mood that had benefited from signs of improving growth in China and the US, and from comments from Trump and other senior US 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.

“I think this has got the potential to be a real game-changer,” said Nick Twidale, Sydney-based analyst at Rakuten Securities Australia.

“There is still a question of whether this is one of the famous Trump negotiation tactic, or are we really going to see some drastic increase in tariffs. If it's the latter we'll see massive downside pressure across all markets,” he said.

MSCI's broadest index of Asia-Pacific shares outside Japan was down 1.6 per cent shortly after China's markets reopened from a three-day national holiday.

Chinese blue-chips shed 4.2 per cent in early trade, having closed higher before the holiday amid expectations that pressures on China's economy were easing.

The drop in Chinese shares came despite a move on Monday by China's central bank to cut reserve requirements for smaller banks to help boost lending to small and private firms.

Australian shares were off 1.2 per cent.

Japanese financial markets remain closed until Tuesday for a national holiday, but Nikkei 225 futures dropped 2.4 percent to 21,955.

E-Mini futures for the S&P 500 slid 1.9 per cent, erasing memories of gains on Friday after the U.S. payroll data had helped to lift Wall Street.

Treasury futures jumped 21 ticks. Data from CME Group showed the market sees a nearly 58 per cent chance of a Federal Reserve rate cut by the end of the year.

Chinese 10-year treasury futures also jumped, with the most-traded contract, for June delivery rising 0.5 percent to 97.010.

“The intensified trade and geopolitical risks are likely to prompt the regional central banks for more stimulatory policies,” analysts at ING said in a note. “We expect the majority of Asian central banks meeting this week to cut their policy rates.”

As investors flocked to the safe-haven yen, the dollar dropped 0.6 per cent against the Japanese currency to 110.43 .

But China's yuan plunged, with the offshore unit weakening to 6.8215 per dollar, its weakest level since January 10, before paring some of its losses.

The onshore yuan weakened to 6.7980 per dollar before bouncing back to 6.7923.

The single currency was down 0.1 per cent on the day at $1.1189. The dollar index, which tracks the greenback against a basket of six major rivals, was flat at 97.523.

In commodity markets, US crude plunged 2.9 percent at $60.17 a barrel and Brent crude fell 2.6 per cent to $69.01 per barrel.

Spot gold jumped 0.3 per cent to trade at $1,282.91 per ounce.

(Reporting by Andrew Galbraith; Additional reporting by Swati Pandey in SYDNEY; Editing by Sam Holmes & Kim Coghill)

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