By Hideyuki Sano
TOKYO (Reuters) - U.S. stock futures dropped but Asian shares were resilient on Monday as investors weighed the near-certain prospect of an interest rate hike in the United States this month against news of China's slower 2017 growth target.
Risk appetites also took a hit on rising geopolitical tensions in East Asia, as North Korea fired four ballistic missiles early in the day, while a spat between China and South Korea over missile defence deepened.
U.S. President Donald Trump's accusation that his predecessor, Barack Obama, wiretapped him also cast a shadow on U.S. stocks as some investors view his confrontational style as distracting him from his economic agenda.
U.S. stock futures dropped as much as 0.45 percent, a fairly large move for Asian trade. Japan's Nikkei dropped 0.5 percent for the day.
European shares are expected to follow suit, with spread-betters looking to a fall of 0.3-0.4 percent in Germany's DAX and Britain's FTSE.
But MSCI's broadest dollar-denominated index of Asia-Pacific shares outside Japan was up 0.4 percent, with most markets in positive territory. South Korean shares also erased earlier losses to post small gains.
"Asian shares were supported in light of U.S. rate hike expectations. Higher resource prices and relatively robust growth in China are underpinning markets," Yukino Yamada, senior strategist at Daiwa Securities.
Federal Reserve Chair Janet Yellen on Friday all but confirmed market expectations for an interest rate rise in March, barring any sharp deterioration in economic conditions.
U.S. money market futures are pricing in about a 90 percent chance the Fed will raise interest rates by 0.25 percentage point at its meeting on March 14-15, with another rate hike fully priced in by September.
"A rate hike is almost a done deal now. So the focus will be on the pace of rate hikes after that. If there's hawkish projections, the dollar could rise further," said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management.
The dollar dipped 0.3 percent to 113.77 yen while the euro eased 0.1 percent to $1.0608.
The yuan was little moved so far, fetching 6.8920 yuan per dollar in offshore trade after China cut its growth target for this year to 6.5 percent, compared to its 2016 goal of 6.5 to 7 percent. Growth in 2016 came in at 6.7 percent.
Dampening risk appetite was rising tension over North Korea, which on Monday fired four ballistic missiles, three of which landed in Japan's exclusive economic zone, Japanese Prime Minister Shinzo Abe said. It was the latest in a series of provocative tests by the reclusive state.
The move came just after Japanese media reported on Saturday U.S. Secretary of State Rex Tillerson is due to visit Japan, South Korea and China this month to discuss North Korea on his first trip to the region since he took up his post.
"This is the worst type of 'geopolitical' risk. It is one that it's hard to hedge against. The 'peace, or lack thereof' risk has been growing for the 10-plus years and is becoming a bigger issue and another reason for caution," said Dan Fuss, vice chairman of Loomis Sayles.
Adding to the tensions in the region, South Korea's trade minister said on Sunday that Seoul's responses against discriminating action by China towards South Korean companies will be strengthened.
South Korean media said last week Chinese government officials had given verbal guidance to tour operators in China, to stop selling trips to South Korea days after the Seoul government secured land for a U.S. missile-defence system.
The Korean won fell 0.4 percent to five-week lows.
Markets also remain focused on Trump's economic policies and how much of fiscal stimulus would come through during his first term in office.
"There are worries that Trump may not be able to push through his spending plans, given delay in appointments of key staff. It now looks possible that the next year's budget hardly reflects his agenda," said Masashi Murata, senior currency strategist at Brown Brothers Harriman.
The 10-year U.S. Treasuries yield dipped to 2.472 percent after hitting a two-week high of 2.521 percent on Friday.
Oil prices dipped on concern over Russia's compliance with a global deal to cut oil output and China's lower growth target.
International benchmark Brent futures fell 0.7 percent to $55.51 per barrel, down 0.3 percent.
Figures released last week showed Russia's February oil output was unchanged from January, casting doubt on Russia's moves to rein in output as part of a pact with oil producers last year.
(Additional reporting by Tomo Uetake; Editing by Shri Navaratnam and Richard Borsuk)
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