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* Asian stock markets : tmsnrt.rs/2zpUAr4
* MSCI ex Japan off 0.2 pct, Nikkei deep in red
* Investors stay focussed on Sino-U.S. trade war talks
* Xi Jinping delivers speech later in the day
* U.S. mid-term elections on Nov.6
By Swati Pandey
SYDNEY, Nov 5 (Reuters) - Sterling jumped to a two-week high on Monday on hopes Britain was inching closer to a smooth Brexit while Asian stocks started the week gingerly amid worries about tense Sino-U.S. trade relations.
With just five months to go until Britain exits the European Union divorce talks are at an impasse, fuelling severe uncertainty among businesses and whipsawing sterling on any news of a possible breakthrough in the negotiations.
A Sunday Times report that an all-UK customs deal will be written into the agreement governing Britain’s withdrawal from the EU was enough to cheer investors who sent the pound to $1.3062, the highest since Oct. 22.
The currency has faltered in seven of the 10 months of this year so far, losing as much as 3.6 percent. It was last up 0.2 percent at $1.2997.
The Prime Minister’s office said the Sunday Times report was speculative, but added that 95 percent of the withdrawal agreement was settled and negotiations were ongoing.
In equities, MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 0.2 percent in early trades but was well off a 1-1/2 year trough touched last week.
Japan’s Nikkei stumbled 1.3 percent while South Korea’s KOSPI index dipped 0.8 percent. Australian shares were in the negative territory too, down 0.5 percent .
U.S. stock futures were down 0.4 percent after Wall Street closed in the red on Friday on concerns a trade deal between the United States and China may not be struck soon.
Investors will keep their eyes peeled for any new headlines on the Sino-U.S. trade war ahead of a meeting of the leaders of the world’s two biggest economies later this month.
Chinese President Xi Jinping’s speech at the China International Import Expo later in the day could provide further clues.
Trading is broadly expected to be nervous ahead of U.S. congressional midterm elections on Tuesday.
Opinion polls show a strong chance that the Democratic Party could win control of the House of Representatives after two years of wielding no practical political power in Washington, with President Donald Trump’s Republican Party likely to hold the Senate.
A Reuters analysis of the past half century shows stocks fared better in the two calendar years after congressional elections when Republicans control Congress and the presidency than when Democrats controlled the two branches, as well as during times of gridlock.
The outlook for global shares has also been clouded by the prospect of faster rate rises in the United States given robust economic data in recent months.
The United States reported solid jobs growth for October, with annual wages gain at 9-1/2-year highs, further boosting expectations for a December rate rise.
“The U.S. employment report supports our view that the Federal Reserve will raise rates three more times from now until mid-2019,” Capital Economics said in a note.
“After that, we suspect that the cumulative effect of monetary policy tightening will start taking a toll on the US economy, forcing the Fed to end its tightening cycle and pulling Treasury yields, the US stock market, and the dollar down.”
The strong jobs data sent the U.S. dollar rallying on Friday although it struggled to hold its gains. The index which measures the greenback against a basket of major currencies was last off 0.1 percent at 96.414.
Against the safe haven yen, the dollar held at 113.17 . The euro was slightly higher at $1.1395.
In commodities, oil traders will keenly await the outcome of negotiations on possible waivers of U.S. sanctions on Iran. The sanctions will be reimposed on Monday covering Iran’s oil, banks, insurance and shipping sectors.
“Any deals allowing oil importers to continue buying from Iran could see prices come under further pressure,” ANZ said in a morning note to clients.
U.S. crude fell 23 cents to $62.91 per barrel and Brent was last at $72.62, down 21 cents.
Spot gold was firm amid solid festive demand from India, the world’s top buyer. It was last up 0.2 percent at $1,234.5 an ounce.
Reporting by Swati Pandey; Editing by Peter Cooney and Eric Meijer