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Headline shares of the Hong Kong market tumbled on Thursday, 06 December 2018, with technology stocks pacing the declines, in the wake of reports that Canada had arrested the chief financial officer of China's Huawei and amid confusion over US-China trade progress. News of the arrest heightened the sense a major collision was brewing between the world's two largest economic powers, not just over tariffs but also over technological hegemony. In afternoon trades, the Hang Seng Index dropped 690.23 points or 2.57% to 26,129.45. The Hang Seng China Enterprises Index fell 290.98 points or 2.71% to 10,465.97.

Canada has arrested Huawei's global chief financial officer in Vancouver, where she is facing extradition to the United States, Canada's Department of Justice said on Wednesday. The arrest is related to violations of U.S. sanctions. Huawei confirmed the arrest in a statement and said that it has been provided little information of the charges against Meng, adding that it was “not aware of any wrongdoing by Ms. Meng.” The arrest could drive a wedge between China and the United States just days after President Donald Trump and President Xi Jinping held a meeting in Argentina where they agreed to steps to resolve a brewing trade war. U.S. authorities have been probing Huawei, one of the world's largest makers of telecommunications network equipment, since at least 2016 for allegedly shipping U.S.-origin products to Iran and other countries in violation of U.S. export and sanctions laws.

The arrest reignited concerns over the chances for a longer-term US-China deal on trade. While investors initially greeted the trade ceasefire reached in Argentina with relief, the mood has quickly soured on skepticism that the two sides can reach a substantive deal.

Global equity markets have been shaken and the dollar fell this week after an inversion in a part of the U.S. Treasury yield curve triggered market concerns about economic growth. The spread between the two-year and five-year Treasury yields inverted this week and the two-year/10-year spread was at its flattest in more than a decade amid a sharp fall in long-term rates. A flatter curve is seen as an indicator of a slowing economy, with lower longer-dated yields suggesting that the markets see economic weakness ahead.

Investors are looking for progress on trade as well as clues to the future path of economic growth. U.S. President Donald Trump said China is sending “very strong signals” following trade discussions in Argentina, as uncertainty remains over what commitments were made between the two nations. Over the weekend, President Trump agreed to suspend increases in tariffs on Chinese goods for 90 days, after a meeting with Chinese leader Xi at the G-20 summit in Buenos Aires.

The Federal Reserve's Beige Book economic report showed fading optimism over prospects for growth at U.S. firms even as a majority of districts continued to report a modest expansion in recent weeks.

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