Donald Trump and Xi Jinping have been urged to reach a trade deal or risk setting the global economy on a downward path as world leaders gathered in Japan for the G20 summit.

Russian president Vladimir Putin, Indian prime minister Narendra Modi and European president Jean-Claude Juncker heaped pressure on the two superpowers on Friday to settle their differences when they meet on the sidelines of the Osaka summit on Saturday.

But financial markets fell across Asia on Friday amid growing fears that the talks will fail to break the logjam and see the US president carry out his threat of additional tariffs on Chinese goods.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.3%, with weakness in Chinese equities weighing on the broader region. The Shanghai composite was down nearly 1% while Japan’s Nikkei stock index was 0.55% lower.

Trump has adopted a belligerent position ahead of the meeting, saying that China was desperate to reach a deal because its economy was “going down the tubes”.

Xi hit back on Friday by saying that some developed countries were taking protectionist measures that are leading to trade conflicts and economic blockade - calling them the biggest risk of the increase in instability in the global economy.

“All this is destroying the global trade order,” he told leaders of the so-called Brics nations (Brazil, Russia, India, China and South Africa) in Osaka.

Japan’s prime minister, Shinzo Abe, urged G20 leaders to work together to defuse trade and political tensions, describing them as threats to global economic growth and stability.

Abe, eager to avoid Japan’s first G20 summit descending into rancour, said “free and open” economies were critical to peace and prosperity, adding that no one would benefit from retaliatory moves over trade.

Trump has also threatened Japan over what he calls its unfair advantage on trade. Abe, who hosted the US president on a lavish state visit last month, began the summit by handing him a document outlining Japanese carmakers’ recent investments in the US.

US President Donald Trump and Japan’s Prime Minister Shinzo Abe shake hands at the G20 Photograph: Mikhail Metzel/TASS

Trump said before his bilateral with Abe on Friday morning: “I appreciate the fact that you’re sending many automobile companies into Michigan, and Ohio, and Pennsylvania, and North Carolina – a lot of our states. I see they’re building all over the United States, a lot of the great Japanese car companies … and other Japanese companies also.

“But in particular, the car companies have been terrific. They’re coming in and they’re building magnificent plants. We haven’t had that, and we very much appreciate it.

“So we’ll be discussing trade. We’ll be discussing military. And we’ll be discussing the purchase of a lot of military equipment by Japan, and we appreciate that.”

Putin echoed Xi’s concerns at the same meeting, saying in a thinly veiled attack on the US that attempts to weaken the role of the World Trade Organisation – as Trump has suggested he wants to do – were “counter-productive”.

The current situation in the global economy was worrying, he added, as global trade was feeling the effect of “protectionism [and] politically motivated restrictions”.

Ahead of talks with Modi, Trump softened his warnings about tariffs on India and said “we’re going to have some very big things to announce … with India in terms of trade”.

But that did not stop Modi joining the chorus of warnings about “one-sided decisions” that jeopardised the balanced development of the global economy for all countries. Juncker said the trade relations between China and the US were “difficult” and were causing a slowdown of the global economy.

Michael McCarthy of CMC markets in Sydney said that there was nevertheless some optimism that there would be a step forward in the trade negotiations, which broke down in May at the last minute.

However, he warned that despite the relative calm, the financial markets’ VIX volatility measure, known as the “fear index”, spiked to above 16%. “This is a significant increase on the April low near 11%,” he said, “and shows investor fear is on the rise.”

Hannah Anderson, JP Morgan Asset Management global market strategist, said the concern was that the markets had “seen this movie before”.

“China and the US talk, leaks from policymakers on both sides encourage speculation we are close to a deal, things fall apart, the US presses forward with higher tariffs and markets express their displeasure with corrections and higher volatility.”

The US dollar, which has fallen in the wake of signals from the US Federal Reserve that it will begin cutting interest rates soon, was flat against a basket of six major rivals. The Australian dollar, seen as a proxy for the Chinese economy, rose above US70c.

In commodity markets, trade worries continued to weigh on oil, with the global benchmark Brent crude down 0.56% to $66.18 per barrel. It was better for gold though as the traditional safe haven for investors rose to trade at $1,420.35 per ounce, up 0.79%.

With Reuters and Agence France-Presse