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Asia stocks muted by China tensions, Europe shares up

TOKYO/HONG KONG--Asian stock markets were muted Tuesday as tensions flared between China and Vietnam over a territorial dispute while hopes of easier monetary policy continued to boost European shares.

Germany's DAX rose 0.4 percent to 9,927.85, extending the previous day's gains that were sparked by European Central Bank President Mario Draghi suggesting further stimulus may be needed to fend off growth-sapping deflation.

France's CAC-40 was little changed at 4,527.72 while Britain's FTSE 100, which was closed for a holiday on Monday, gained 0.5 percent to 6,852.56.

U.S. shares looked set for a strong start after the Memorial Day holiday. Dow Jones futures were up 0.4 percent at 16,655 and S&P 500 futures gained 0.5 percent to 1,905.80.

Investors are waiting to see whether U.S. stocks can sustain their momentum after the S&P 500 finished last week above 1,900 for the first time. Markets are also keeping a wary eye on developments in Ukraine after Sunday's presidential elections.

A fierce battle erupted in the rebel-held eastern belt of Ukraine Monday, just hours after President-elect Petro Poroshenko vowed he would not let the country become another Somalia.

Ukrainian fighter jets and combat helicopters struck the terminal building at an airport in the eastern city of Donetsk to try to dislodge scores of separatist gunmen who seized the complex, triggering hours of heavy firefights.

Russia's acceptance of billionaire businessman Petro Poroshenko as Ukrainian president had raised hopes for an easing of tensions. But hours after he was declared the victor, pro-Russian rebels escalated the Ukrainian conflict by occupying a major airport in the country's east and Kiev retaliated with an air strike.

In Asia, shares were mixed after Vietnamese state media reported that a Chinese fishing vessel rammed and sank a Vietnamese fishing boat in the South China Sea, where the countries have overlapping territorial claims. Tensions rocketed this month after China sent an oil rig into seas near disputed islands.

Tokyo's Nikkei 225 closed up 0.2 percent at 14,636.52 after surging earlier in the day to its highest level since early April.

The release of data Tuesday showing resilient business conditions and rising producer prices, and the yen's steadiness against the dollar, araised confidence in Japan's economic recovery.

South Korea's KOSPI fell 0.6 percent to 1,997.63 and Hong Kong's Hang Seng index slipped 0.1 percent to 22,944.30.

Shares gained in Malaysia but fell in Australia, New Zealand, Singapore and Shanghai.

With Thailand in the midst of a military coup and China at odds with Vietnam and other neighbors, investors are feeling cautious, said Linus Yip, a strategist at First Shanghai Securities in Hong Kong.

Gold fetched US$1,283.05 an ounce at 1102 GMT compared with US$1,293.04 late Monday.

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