Asian Shares Slip Over U.S.-China Drone Row

Most Asian stock benchmarks lost ground Monday as investors fretted over the potential political and economic fallout from China’s capture of a U.S. underwater glider.

Japan’s benchmark Nikkei 225 index slipped 0.1 percent to 19,391.60 while South Korea’s Kospi edged 0.1 percent lower to 2,039.97. Hong Kong’s Hang Seng shed 0.7 percent to 21,859.95 and the Shanghai Composite index dipped 0.2 percent to 3,115.52. Australia’s S&P/ASX 200 rose 0.5 percent to 5,562.10. Benchmarks in Taiwan, Singapore, Indonesia and the Philippines also retreated.

China’s seizure of a U.S. Navy unmanned underwater glider is one of the most serious incidents between the American and Chinese militaries in years. China says it will return the device but President-elect Donald Trump tweeted China can keep it. The incident in the busy, dispute South China Sea is making investors nervous as markets approach a week of holiday-thinned trading.

“While China has stated that it will return the drone, the repercussions are difficult to estimate with U.S.-China tensions likely to simmer even after an eventual return,” said Chiang Wei-liang, a strategist at Mizuho Bank in Singapore. “While we expected reduced trading and thin markets heading into Christmas holidays, markets will still be wary of any potential escalation into punitive trade actions.”

Investors are sitting tight as they watch for the outcome of the Bank of Japan’s final monetary policy meeting of the year, which wraps up on Tuesday. Central bankers may revise their outlook for Asia’s second biggest economy based on recent data, including import and export figures released Monday that showed a surplus for the third month in a row.

New government forecasts show a bigger Australian budget deficit than expected as growth in the resources-driven economy slows to 2 percent, more than previously forecast, as the China-powered mining boom falters. However, that means policymakers are under no pressure to follow the Fed’s lead and tighten up on monetary policy, which could derail the stock market.

Major U.S. benchmarks ended lower on Friday. Standard & Poor’s 500 index fell 0.2 percent to 2,258.07. The Dow Jones industrial average fell less than 0.1 percent to 19,843.41. The Nasdaq composite fell 0.4 percent to 5,437.16. The three indexes all remain within 1 percent of their record highs.

Crude oil rose 36 cents to $52.26 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose $1 to settle at $51.90 a barrel on Friday. Brent crude, the international standard, rose 27 cents to $55.48 a barrel in London.

The dollar eased to 117.32 yen from 117.91 yen in Friday’s trading. The euro rose to $1.0461 from $1.0452.