* S&P500 mini futures fall, Asia stocks stay up in volatile trade
* Some investors pin hopes on Friday's U.S.-China trade talks
* Most stock markets on track for heavy weekly losses
* U.S. Treasuries and yen supported
* European shares seen up 0.5-0.6 pct
* Asian stock markets: tmsnrt.rs/2zpUAr4
By Hideyuki Sano
TOKYO, May 10 (Reuters) - U.S. stock futures fell and Asian shares held onto earlier-pared gains on Friday after U.S. President Donald Trump's tariff hike on $200 billion of Chinese goods took effect, raising tensions between the world's two biggest economies despite ongoing talks.
E-mini futures for U.S. S&P500 slipped after the higher tariffs kicked in, and were last down 0.6% in choppy trade.
Chinese shares, even more volatile, dropped sharply when the tariffs took effect but then recovered, with the Shanghai composite index last 1.9 percent higher.
MSCI's broadest index of Asia-Pacific shares outside Japan , which dropped more than 1 percent early Friday, remained where they were when tariff increase kicked in, up 0.3%.
Japan's Nikkei was off 0.3 percent.
European stock futures point to gain of 0.5-0.6 percent in European stocks, which closed on Thursday before Trump's comments about receiving a "beautiful" letter from Chinese President Xi Jinping.
That stoked some optimism, helping U.S. shares cut losses on Thursday.
With no action taken by the Trump administration to reverse the increase the duty rate to 25 percent from the previous 10% by 0401 GMT, investors worried about further escalation in the trade war that has dogged the global economy for more than a year.
"Best case from here is we hold at 25%. But unless China blinks things can get far, far worse. This can escalate beyond tariffs. And beyond economics," Michael Every, Hong Kong-based head of Asia-Pacific markets research at Rabobank.
But the White House has said the two sides would resume negotiations on Friday morning in Washington after concluding the first of two days of talks on Thursday to try to rescue a trade deal close to collapsing.
That has encouraged some investors to cling to hopes that the U.S. administration could revoke the new tariff hike once a deal is reached.
"The most likely outcome – to which we assign a probability of 70% – sees both sides concluding a deal, albeit at perhaps a slightly delayed timeframe," said Jack Siu, senior investment strategist at Credit Suisse in Hong Kong.
He predicted the market will remain volatile until a deal is eventually reached.
But Trump also threatened on Thursday to take steps to authorise new tariffs on $325 billion in Chinese imports.
Still, on the week, most markets were down on fears about Sino-U.S. tensions.
The S&P500 futures were down 3.0%, the Shanghai index down 6.3%, the Nikkei 4.5% and ex-Japan Asia MSCI 4.3%.
"Should tensions escalate significantly in coming days, we expect a pronounced market reaction. There is the potential for a 15%-plus correction in Chinese and emerging market (EM) stocks, and around 5-7% falls in global equities, in our opinion," analysts at Lombard Odier Investment Managers said in a note.
Rising geopolitical tensions are not helping.
North Korea fired what appeared to be two short-range missiles on Thursday in its second such test in less than a week and the United States said it had seized a North Korean cargo ship.
On Iran, Trump said he could not rule out a military confrontation after Tehran relaxed restrictions on its nuclear programme in response to U.S. sanctions imposed following Trump's withdrawal of the United States from the accord with a year ago.
The 10-year U.S. Treasuries yield stood at 2.449 percent near its lowest levels since late March.
It stood just about two basis points above the three-month bill yields, which stood at 2.424 percent.
A fall in the 10-year yield below the shorter three-month yields would likely spark worries about the U.S. economy, as in the past the phenomenon has signalled a recession.
In the currency market, the yen is favoured, with the dollar changing hands at 109.65 yen, having hit a three-month low of 109.47 on Thursday.
The euro firmed slightly to $1.1226 while the Chinese yuan perked at 6.837 per dollar having hit a four-month low of 6.8638 to the dollar the previous day.
MSCI's emerging market currency index also tumbled to a four-month low on Thursday.
Oil prices erased gains that were made after Trump's comments on Xi's letter raised hopes for a deal.
Brent was down 0.1% to $70.30 a barrel while U.S. West Texas Intermediate (WTI) crude fell 0.1% to $61.67.
Gold ticked up 0.2 percent to $1,286.3 per ounce.
Additional reporting by Andrew Galbraith in Shanghai, Noah Sin in Hong Kong and Daniel Leussink in Tokyo, Editing by Kim Coghill and Richard Borsuk