Global financial markets tumbled on Monday after U.S. President Donald Trump unexpectedly jacked up pressure on China to reach a trade deal in the midst of negotiations, saying he would hike U.S. tariffs on Chinese goods this week. Equity markets, which have been largely expecting the two sides to reach a trade accord soon, fell sharply as further talks to end their bruising trade war was thrown into doubt.

Chinese shares plunged more than 6 per cent at one point, while U.S. stock market futures fell close to 2 per cent. Oil prices sank and the Chinese yuan weakened sharply. Trump sharply escalated tensions between the world's two largest economies with tweeted comments on Sunday that trade talks with China were proceeding "too slowly", and that he would raise tariffs on $200 billion of Chinese goods to 25 per cent on Friday from 10 per cent.

He also said he would target a further $325 billion of Chinese goods with 25 per cent tariffs "shortly". The tweets upended the previously calm market mood that had benefited from signs of improving economic growth in China and the United States, and from comments from Trump and other senior U.S. officials that trade talks were going well.

The Wall Street Journal reported on Monday that China was considering cancelling trade talks scheduled for this week following Trump's threats. "I think this has got the potential to be a real game-changer," said Nick Twidale, Sydney-based analyst at Rakuten Securities Australia.

"There is still a question of whether this is one of the famous Trump negotiation tactics, or are we really going to see some drastic increase in tariffs. If it's the latter, we'll see massive downside pressure across all markets," he said. MSCI's broadest index of Asia-Pacific shares outside Japan was down 1.9 per cent, after earlier losing more than 2 per cent.

Chinese blue-chips lost more than 6 per cent at one point in the morning session, having closed higher before a three-day national holiday amid expectations that pressures on China's economy were easing. They later clawed back some losses and were last down 5.3 per cent. The drop in Chinese shares came despite a move on Monday by China's central bank to cut reserve requirements for small banks to help boost lending to small and private firms. Australian shares were off 0.9 per cent. Japanese financial markets remain closed until Tuesday for a national holiday, but Nikkei 225 futures were down 2.3 per cent at 21,965.

E-Mini futures for the S&P 500 slid 1.9 per cent, erasing memories of gains on Friday after the U.S. payroll data had helped to lift Wall Street and signalling a rough open for U.S. stocks on Monday. "The risk for (Trump) is that the Chinese don't play ball and don't go ahead with the negotiation," said Shane Oliver, head of the investment strategy at AMP in Sydney.

"It's not in his interest for shares to go down as it would hit U.S. business confidence and investment, and that would shoot up unemployment. And that would be a risk for his re-election, too," he said.

MORE EASING ON THE WAY?

The flight from riskier assets boosted interest in safe havens, pushing U.S. Treasury futures up 19 ticks. Data from CME Group showed the market now sees a 58.5 per cent chance of a Federal Reserve rate cut by the end of the year. Chinese 10-year treasury futures also jumped, with the most-traded contract, for June delivery rising as much as 0.5 per cent. They were last up about 0.3 per cent at 96.850.

"The intensified trade and geopolitical risks are likely to prompt the regional central banks for more stimulatory policies," analysts at ING said in a note. "We expect the majority of Asian central banks meeting this week to cut their policy rates." As investors flocked to the safe-haven yen, the dollar dropped 0.5 per cent against the Japanese currency to 110.56.

But China's yuan plunged, with the offshore unit weakening to 6.8215 per dollar, its weakest level since January 10, before paring some losses. The onshore yuan weakened nearly 1 per cent to 6.7980 per dollar before bouncing back to 6.7880.

The euro was down 0.13 per cent on the day at $1.1186. The dollar index, which tracks the greenback against a basket of six major rivals, was barely higher at 97.538. In commodity markets, Trump's tweets sparked a plunge in oil prices. U.S. crude dropped 2.2 per cent to $60.58 a barrel and Brent crude fell 2 per cent to $69.45 per barrel.

The tweets have compounded pressure on prices amid signs of a rise in U.S. output, which has surged by more than 2 million barrels per day since early 2018. Spot gold jumped 0.3 per cent to trade at $1,282.80 per ounce.