Stocks fell and bonds rose in Asia on Thursday, with risk appetite soured by signs the Federal Reserve might start paring its king-sized asset holdings later this year just as the chance of early US fiscal stimulus faded further.

Investors were also wary ahead of a potentially tense meeting between US President Donald Trump and his Chinese counterpart Xi Jinping, the first between the world's two most powerful leaders.

Topping the agenda at Trump's Mar-a-Lago resort in Florida will be whether he makes good on his threat to use US-China trade ties to pressure Beijing to do more to rein in its nuclear-armed neighbour North Korea.

Lingering fears of a possible trade war kept Asian markets on edge.

MSCI's broadest index of Asia-Pacific shares outside Japan slipped 0.8 per cent.

Japan's Nikkei fell 1.4 per cent to touch its lowest since early December. Australia's index lost 0.6 per cent and S&P 500 futures eased 0.3 per cent.

Shares in Shanghai were flat after a private survey of China's service sector showed activity expanded at its slowest pace in six months in March.

US stock market futures fell 0.3 per cent, suggesting further weakness on Wall Street later in the day.

Sentiment had already been bruised when US House of Representatives Speaker Paul Ryan said there was no consensus on tax reform and it would take longer to accomplish than healthcare.

Markets have risen in recent months in part on speculation fiscal stimulus would boost US growth and inflation.

Minutes of the Fed's last meeting also showed most policymakers thought the US central bank should begin trimming its $4.5 trillion balance sheet later this year, much earlier than many had expected.

“Central bank asset purchases and broader largesse have been a key support factor for markets for nearly a decade,” said ANZ economist Felicity Emmett, who wondered if the global economy could cope with such a sea change.

“Raising the fed funds rate a quarter of a point every now and then is tinkering at the edges compared to the elephant in the room that is the balance sheet.”

Whiplash

The minutes also showed “some participants viewed equity prices as quite high relative to standard valuation measures''.

The reaction was whiplash on US markets. The Dow posted its largest intra-day downside reversal in 14 months after shedding a gain of more than 198 points to end near the session low.

The Dow ended down 0.2 per cent, while the S&P 500 lost 0.31 per cent and the Nasdaq 0.58 per cent.

“We were hit by a bucket of cold water,” said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

“Signs that the Fed could pare its balance sheet is shocking enough, but the mood was exacerbated as the Fed touched upon stock valuations, which is very rare,” he added.

Stocks had initially rallied when data showed US private employers added a surprisingly strong 263,000 jobs in March, spurring speculation that the official payrolls report on Friday would also impress.

Treasuries rallied, with yields on 10-year paper back at 2.33 per cent and threatening to clear a hugely important chart barrier at 2.30 per cent.

The drop in yields dragged the dollar down on the yen, where it was last at 110.48 and nearing chart support in the 110.11/27 zone.

Against a basket of currencies, the dollar was off 0.1 per cent at 100.500. The euro was trading sideways at $1.0672.

In commodity markets, oil ticked lower after the US government reported a surprise increase in US crude inventories to a record high.

US crude was down 29 cents at $50.86 a barrel, while Brent lost 27 cents to $54.09.

Easily the biggest mover this week has been coking coal, which surged 43 per cent on Singapore-listed futures after Cyclone Debbie slammed into top supplier Australia, crippling exports of the steelmaking raw material.

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