HONG KONG - Increasing concerns about a conflict between the United States and Iran hit equity markets Tuesday and sent gold prices to a fresh six-year high, jolting investor confidence days ahead of crucial trade talks between Donald Trump and Xi Jinping.
The latest round of sanctions against supreme leader Ayatollah Ali Khamenei and military top brass meant the "permanent closure of the path to diplomacy", the Islamic republic's foreign ministry said.
Trump unveiled the new restrictions Monday, days after the downing of a US "spy drone" that Tehran said had entered its airspace.
The tweet, from ministry spokesman Abbas Mousavi, provided a catalyst to sell for Asia stock traders, who had been sitting on their hands ahead of the Trump-Xi meeting at the end of the week.
In afternoon trade Hong Kong fell 1.4 percent, while Shanghai was 1.7 percent off and Tokyo dropped 0.6 percent off, with profit-taking after a recent rally adding to selling pressure.
Sydney was down 0.1 percent, Seoul and Singapore each retreated 0.3 percent and Taipei lost 0.8 percent. Still, Wellington, Manila, Bangkok and Jakarta were slightly higher.
London fell 0.5 at the open, while Frankfurt and Paris each lost 0.4 percent.
Safe haven investments climbed, with gold breaking $1,430 for the first time since September 2013, with a softer dollar adding support, while the yen -- a go-to unit in times of turmoil -- was up against the greenback.
Traders were also keeping tabs on developments in the China-US trade standoff as the leaders prepare for crunch talks on the sidelines of the G20 in Osaka.
World markets have rallied since Trump last week flagged positive phone talks with Xi and said they would discuss their trade spat.
On Tuesday, Chinese state media said top-level negotiators for both sides had held discussions ahead of the meeting, and "exchanged opinions on economic and trade issues". The call took place "at the request of the US side" and they agreed to maintain contact, the Xinhua news agency said.
"The G20 will not get going until midweek, but the anticipation of a meeting between the leaders of China and the US is keeping markets guessing," said OANDA senior market analyst Alfonso Esparza.
"The prolonged trade war between the two largest economies has downgraded global growth as more barriers to trade means higher prices. Optimism remains high, but more details need to emerge before the market can fully price in how far apart the two sides really are from a deal."
Despite the rising fears of conflict between the US and Iran crude prices extended the morning's losses, with David Madden, market analyst at CMC Markets UK, saying "traders began to fear that demand for oil will fall".
Iran and the US have said they do not want a war, with the US content with trying to cripple Iran economically.
Oil traders are also keenly awaiting a meeting of OPEC and other major producers this weekend, hoping for clarity on their output reduction programme, which has supported prices.
The greenback was down against most other currencies, weighed by expectations the Federal Reserve will cut interest rates as soon as July, while bitcoin held above $11,000 after breaking the marker for the first time in 16 months.