* MSCI Asia-Pacific index down 0.2 pct, Nikkei up 0.05 pct
* China stocks drop amid lingering trade woes, dampens sentiment
* Dollar sags, pound stands tall as ‘hard Brexit’ fears recede
* Oil prices extend overnight rally
By Shinichi Saoshiro
TOKYO, Aug 30 (Reuters) - Asian stocks surrendered earlier gains and dipped on Thursday, with Chinese markets fixed firmly on risks from the Sino-U.S. trade war and taking little comfort from an apparent easing in business tensions in North America and Europe.
The leaders of the United States and Canada expressed optimism on Wednesday that NAFTA negotiations would meet a Friday deadline for a deal, days after the U.S. and Mexico reached a bilateral agreement.
But MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 0.2 percent, with broad gains across the region offset by losses in China.
The Shanghai Composite Index slid 0.8 percent and Hong Kong’s Hang Seng fell 0.7 percent.
“Investors are relatively pessimistic and cautious for now amid low levels of trading volume, as there are still concerns over the development of the Sino-U.S. trade spat,” said Yan Kaiwen, an analyst with China Fortune Securities.
U.S. tariffs on another $200 billion of Chinese goods are expected to take effect later next month.
Australian stocks rose 0.1 percent. Japan’s Nikkei initially touched a three-month high following gains on Wall Street but pared gains and was last up a modest 0.05 percent.
South Korea’s KOSPI was 0.1 percent higher.
Major South Korean steelmakers such as POSCO and Hyundai Steel gained after news that President Donald Trump signed a proclamation permitting targeted relief from steel and aluminium quotas from countries including South Korea.
U.S. shares extended their rally on Wednesday, with the S&P 500 and the Nasdaq hitting record highs for a fourth straight session as technology stocks pushed indexes higher and promising NAFTA negotiations boosted investor confidence.
Canada rejoined the talks to modernise the 24-year-old NAFTA after Mexico and the United States announced a bilateral trade deal on Monday, which had helped global equities begin the week on stronger footing.
The White House has said it wants to settle NAFTA before negotiating with China.
The pound surged as fears of a ‘hard Brexit’ eased after the European Union’s chief exit negotiator signalled an accommodative stance towards London in ongoing talks.
Sterling rose to a 3-1/2-week high $1.3039, extending its gains after surging more than 1 percent overnight.
The dollar index against a basket of six major currencies struggled near a four-week low of 94.434 plumbed on Tuesday, weighed by the pound’s rally.
The greenback has also been on the defensive this week with safe-haven demand for the currency diminishing in the wake of improving risk sentiment in broader markets.
The euro was a shade lower at $1.1699 after edging up 0.1 percent the previous day. The dollar was nearly flat at 111.62 yen after rising 0.4 percent overnight.
The Chinese yuan dipped 0.15 percent to 6.8301 per dollar in early onshore trade on Thursday.
Investors kept a wary eye on the Turkish lira, which retreated to a two-week trough on Wednesday after Moody’s downgraded 20 Turkish banks in a further blow to a country already gripped by a financial crisis and stuck in a diplomatic row with the United States.
Other struggling emerging market currencies in focus included Argentina’s peso. The peso tumbled overnight to a record low against the dollar after Argentine President Mauricio Macri asked the International Monetary Fund (IMF) for early assistance, alarming investors.
The IMF said it was studying the request from Argentina to speed up disbursement of the $50 billion loan programme.
In commodities, Brent crude futures rose 0.1 percent to $77.20 per barrel and U.S. crude futures climbed 0.2 percent to $69.64 per barrel.
Oil contracts had risen more than 1 percent on Wednesday, supported by a drawdown in U.S. crude and gasoline stocks and as U.S. sanctions reduced Iranian crude shipments.
Reporting by Shinichi Saoshiro; Additional reporting by Luoyan Liu; Editing by Sam Holmes and Kim Coghill