GLOBAL MARKETS-Asian stocks gain on economic hopes, Hong Kong remains a risk

* Asian stock markets: https://tmsnrt.rs/2zpUAr4
* Shares gain in Australian and Japan
* Investors bet on economic recovery
* Hong Kong remains a risk

By Stanley White
TOKYO/NEW YORK, May 28 (Reuters) - Asian shares and U.S.
stock futures rose on Thursday as growing optimism about
economic recovery from the coronavirus pandemic trumped
immediate concerns about a standoff between the United States
and China over Hong Kong.
MSCI's broadest index of Asia-Pacific shares outside Japan
.MIAPJ0000PUS was up 0.5%.
Australian shares .AXJO rose 1.86% to the highest in more
than two months, while Japan's Nikkei stock index .N225 rose
1.28% to the highest since early March as investors cheered the
re-opening of economic activity in both countries.
U.S. stock futures, S&P 500 e-minis ESc1 , rose 0.36% on
Thursday in Asia following another positive session on Wall
Street overnight, highlighting the positive mood.
However, the biggest risk to equities is the Sino-U.S.
relationship, which is likely to worsen after U.S. Secretary of
State Mike Pompeo that Hong Kong no longer warranted special
treatment under U.S. law.
"The overall tone is support of risk-on trades, and we can
see less short-selling and more willingness to test the upside
in equities," said Yukio Ishizuki, FX strategist at Daiwa
Securities in Tokyo.
"There remains a fair amount of concern about Hong Kong, but
for now markets look like they will remain calm."
The S&P 500 .SPX had closed above 3,000 for the first time
in almost 12 weeks, bolstered by bank stocks, as investors hoped
that the world economy can recover as it re-opens. .N
The S&P 500 has leapt about 36% since the global coronavirus
pandemic dragged it to the year's low on March 23, but there are
concerns the rally may be overdone and susceptible to a
protracted pullback.
Futures for shares in Hong Kong HSIc1 fell 0.74%,
suggesting some investors remain cautious.
Pompeo said overnight that China had undermined Hong Kong's
autonomy so fundamentally that the territory no longer warranted
special treatment, a potentially big blow to the city's status
as a financial hub. Some investors worry a punitive U.S. response to China on
the issue of Hong Kong could result in a tit-for-tat reaction
from Beijing, further straining ties between the world's two
biggest economies and further hobbling global growth.
Bond investors seemed to agree more circumspection is
needed. Ten-year U.S. yields US10YT=RR dipped to 0.6770% from
0.6802% overnight. Although 10-year yields are up from an
all-time low of 0.4980% struck in March, they are still a
whopping 120 basis points below highs seen in January.
President Donald Trump will now decide how many U.S.
economic privileges Hong Kong should still enjoy. Sources have
said the U.S. government may suspend Hong Kong's preferential
tariff rates for exports to the United States, a far less severe
response than formally revoking Hong Kong's special status under
U.S. law. Trump said he'd announce a response to China's policies
towards Hong Kong later this week.
Oil futures took a beating as investors fretted about
Trump's response to China. U.S. crude oil futures CLc1 fell
2.68% to $31.93 early Thursday.
Uncertainty over Hong Kong's future dragged the yuan in
offshore trade CNH=D3 to a record low of 7.1966 per dollar. It
recouped some of its losses by early Thursday and was firmer at
7.1792.
The euro EUR= , however, was buoyed by a 750 bullion euro
plan to shore up economies hammered by the coronavirus pandemic.
That pushed the euro to an eight-week high and by early
Thursday, the common currency had nudged up 0.1% to 1.1016,
while the U.S. dollar index USD= was down 0.09% at 98.927.
Gold investors, on the other hand, appeared to shrug off
geopolitical risks and focused instead on optimism around the
re-opening of the world economy, paring their holdings of the
safe-haven metal. Prices extended overnight losses and spot gold
XAU= traded at $1,708.60 per ounce. GOL/