By Hideyuki Sano
TOKYO (Reuters) - Asian shares slipped on Monday as worries over Sino-U.S. trade disputes, a possible slowdown in the Chinese economy and higher U.S. borrowing costs tempered optimism despite a rebound in global equities late last week.
Spreadbetters expected European stocks to open mixed, with Britain's FTSE edging up 0.15 percent, Germany's DAX dipping 0.1 percent and France's CAC losing 0.3 percent.
Not helping the mood, oil prices jumped and Saudi Arabian shares tumbled on rising diplomatic tensions between Riyadh and the West after the monarchy warned against threats to punish it over disappearance of a journalist critical of its policies.
MSCI's broadest index of Asia-Pacific shares outside Japan fell 1 percent while Shanghai shares were down 0.75 percent.
Japan's Nikkei slumped 1.8 percent, with carmaker shares hitting 13-month lows after Washington said it would seek a provision about currency manipulation in future trade deals with Japan.
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MSCI's broadest gauge of the world's stock markets was off 0.25 percent after a sizable 3.87 percent decline last week - its biggest since March - to a one-year nadir.
The market shakeout has been blamed on a series of factors, including worries about the impact of a U.S.-China trade war, a spike in U.S. bond yields and caution ahead of the earnings season.
Although selling appeared to have abated on Friday, partly after Chinese trade data showed strong growth in September, many investors remained cautious.
"Some people say markets drew comfort from China's exports data. But to me it seems so obvious the numbers were inflated by front-loading ahead of the introduction of tariffs," said Norihiro Fujito, chief investment analyst at Mitsubishi UFJ Morgan Stanley Securities.
Fujito said the trade war is starting to take a toll on growth in China, noting that data released later on Friday showed Chinese auto sales posted the biggest drop in seven years.
Over the weekend, China central bank governor Yi Gang said he still sees plenty of room for adjustment in interest rates and the reserve requirement ratio (RRR), as downside risks from trade tensions with the United States remain significant.
Also starting to attract wider attention, Saudi Arabia doubled down on pressure from the West on the disappearance of Jamal Khashoggi, a U.S. resident and Washington Post columnist, after he entered the Saudi consulate in Istanbul on Oct. 2.
U.S. President Donald Trump has threatened "severe punishment" if it turns out Khashoggi was killed while many company executives have cancelled their plans to attend a Saudi investor conference later this month.
Investors suspect the latest development could undermine the leadership of Crown Prince Mohammed bin Salman and has the risk of eventually destabilising the oil-rich kingdom.
Saudi Arabia's shares plunged as much as 7 percent on Sunday, and closed down 3.5 percent at their lowest levels since early January.
Oil prices reversed their downtrend since early this month.
Brent crude futures rose 1.3 percent to $81.50 per barrel, bouncing back from Friday's near-three-week low of $79.23.
"Oil prices could rise to $100 on worries about Saudi Arabia," said Kazuhiko Fuji, senior fellow at Research Institute of Economy, Trade and Industry, a think tank affiliated with the Japanese government.
"People had thought the Saudis will make up for fall in Iran's output. If they are starting to use oil as their weapon, that will be a whole new chapter," he said.
Higher oil prices could boost inflation around the world and spark rises in U.S. borrowing costs, which are also seen hurting weak borrowers, especially those in emerging markets.
Although the U.S. 10-year yield posted its first major fall in about two months last week on stock market rout, the yield rose a tad on Monday to 3.15 percent.
Investors were also bracing for a European Union summit meeting from Wednesday.
The British pound shed 0.3 percent to $1.3114 after negotiators from the European Union and the UK failed to clinch a Brexit deal ahead of the crucial summit.
The euro traded at $1.1552, down slightly after Chancellor Angela Merkel's Bavarian allies suffered their worst election result since 1950 on Sunday.
On the other hand, the dollar is seen under pressure against the yen after U.S. Treasury Secretary Steven Mnuchin said on Saturday that Washington wants to include a provision to deter currency manipulation in future trade deals, including with Japan.
That raised worried among Japanese policy circles that this would give Washington the right to label as currency manipulation any future foreign exchange market interventions by Tokyo to keep sharp yen rises in check.
The dollar slipped 0.2 percent to 112.00 yen.
(Additional reporting by Shinichi Saoshiro in Tokyo; Editing by Shri Navaratnam and Richard Borsuk)