May 6, 2020 / 7:06 AM / 23 days ago

GLOBAL MARKETS-Asian shares gain on 'risk-friendly' yuan fixing, oil falters

* Chinese shares reverse losses on firmer than expected CNY fixing

* Japanese markets closed for public holiday

* Oil ends multi-day winning streak

By Swati Pandey

SYDNEY, May 6 (Reuters) - Asian shares extended gains on Wednesday, as investors saw China's yuan fixing offering a modest olive branch to Washington amid a resurgence in trade tensions, while oil ended its winning streak on oversupply fears and weak demand.

China's central bank set the yuan at a broadly neutral midpoint, analysts said, helping take the focus off the exchange rate, a typically contentious point in Sino-U.S. ties. That helped mainland stocks claw back initial losses on their first day of trade since breaking for a holiday last week.

Wall Street futures turned around in afternoon trading, with E-minis for the S&P500 rising 0.5%.

European futures pointed to a weak start after a court decision challenging German participation in Europe's stimulus program fanning worries about a bumpy recovery.

Futures for the Eurostoxx 50 were flat while those for Germany's DAX were off 0.1%. London's FTSE futures eased 0.1%.

MSCI's broadest index of Asia Pacific shares outside of Japan climbed 0.8% in relatively light volumes with Japanese markets closed for a public holiday.

China, opening for the first time since Thursday, reversed early losses sending the blue-chip index up 0.6%. Hong Kong's Hang Seng index climbed 1.5% while South Korea's KOSPI jumped 1.76%.

"The People's Bank of China went a long way to extinguishing one major trade war hotspot by setting the yuan reference rate on a more risk-friendly level," said Stephen Innes, chief markets strategist at AxiCorp.

"USD/CNH dropped about 200 pips on the stable fix, and a recovery in risk sentiment ensued, and there was no follow-through on U.S. President Trump's threat to China."

U.S. President Donald Trump has repeatedly taken aim at China as the source of the pandemic and warned that it would be held to account.

On Tuesday, he urged China to be transparent about the origins of the novel coronavirus that has killed more than a quarter of a million people worldwide since it started in the Chinese city of Wuhan late last year.

On Wall Street overnight, the S&P 500 pared earlier gains after U.S. Federal Reserve Vice Chair Richard Clarida warned that economic data would get much worse before getting better.

The index finished 0.90% higher, the Dow rose 0.6% and the Nasdaq Composite added 1.1%.

In currencies, the yen scaled a three-year high against the euro and a seven-week peak on the dollar on Wednesday after the German court decision.

Germany's highest court on Tuesday gave the European Central Bank three months to justify purchases under its bond-buying programme, or lose the Bundesbank as a participant in a scheme aimed at cushioning the economic blow from the coronavirus.

The decision spooked investors who have been caught this month between grim economic figures and worries about worsening U.S.-China relations, and optimism over easing COVID-19 lockdowns in many countries.

The euro hit a one-week low of $1.0826 overnight and slumped to a three-year trough of 115.09 yen in Asia, as traders fretted about both the scheme and the euro's future.

The safe-haven yen cracked through resistance against the dollar to hit a seven-week high of 106.22.

The risk-sensitive Aussie and kiwi were up on the greenback, holding above 64 cents and 60 cents, respectively. The pound was steady at $1.2431.

The dollar index was flat at 99.818.

Traders will keep an eye for the ADP National Employment Report of private U.S. payrolls on Wednesday. It could foretell the damage to be revealed on Friday in the official U.S. government measure of jobs in April, estimated to show nearly 22 million jobs were lost last month.

In commodities, U.S. crude futures stumbled 22 cents to $24.34 a barrel after five straight sessions of gains while Brent crude skidded 25 cents $30.72.

Oil prices had gained recently as European and Asian countries ended their lockdowns to halt the coronavirus spread and as producers axed supply after the demand crunch.

But analysts cautioned the rebalancing of the market would be choppy.

"We're talking about normalisation of supply and demand but we've got a long way to go," said Lachlan Shaw, National Australia Bank's head of commodity strategy.

"There are a lot of supply cuts that have come through. That combined with some early signs of demand lifting has meant the rate of inventory build is slowing."

Spot gold eased 0.2% to $1,702 an ounce.

Reporting by Swati Pandey in Sydney, additional reporting by David Henry in New York; Editing by Sam Holmes & Shri Navaratnam

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