TOKYO (Reuters) – Asian stocks struggled for traction on Thursday after cautious comments from U.S. Trade Representative Robert Lighthizer deflated some optimism that China and the United States were closing in on a trade deal.

The dollar held onto its gains from Wednesday, supported by higher bond yields.

MSCI’s broadest index of Asia-Pacific shares outside Japan slipped in and out of the red, while South Korea’s KOSPI shed 0.25 percent and Japan’s Nikkei lost 0.35 percent.

The Shanghai Composite Index dipped 0.3 percent as more weak data weighed on sentiment. Figures released on Thursday showed factory activity contracted for the third straight month in February as export orders fell to the lowest level since the global crisis.

Lighthizer said on Wednesday it was too early to predict an outcome in talks between Washington and Beijing.

U.S. issues with China are “too serious” to be resolved with promises from Beijing to purchase more U.S. goods and any deal between the two countries must include a way to ensure commitments are met, he told U.S. lawmakers.

“Lighthizer’s comments trimmed a bit of the trade resolution hopes which had grown recently, and equities are exposed to some downward pressure,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management.

“As for tensions between India and Pakistan, it is a concern. But it remains a regional topic for the moment and the overall market impact has been limited thus far.”

The conflict between India and Pakistan heated up after both said on Wednesday that they shot down each other’s fighter aircraft.

PULLING BACK

Global equities scaled a four-month high earlier this week helped by upbeat expectations towards U.S.-China trade talks, before pulling back after Lighthizer spoke.

“One suspects trade headlines will continue to throw around sentiment for a while yet. The issues are complex, the trade-offs real, and opinions divided,” ANZ strategists said in a note.

In currency markets, the dollar index against a basket of six major currencies stood little changed at 96.097.

The index had edged up 0.1 percent on Wednesday, pulling away from a three-week trough as Treasury yields rose ahead of the release of U.S. fourth-quarter GDP data later on Thursday.

The dollar traded at 110.87 yen , having bounced back from a low of 110.355 on Wednesday as tensions between India and Pakistan flared.

The yen often attracts demand in times of political tensions and market turmoil. It showed little response to data showing Japan’s factory output posted the biggest decline in a year in January.

The euro was a shade higher at $.1.1377 after slipping 0.15 percent on Wednesday.

The pound stood within distance of a near eight-month peak of $1.3351 reached the previous day. Sterling has rallied this week as investors ramped up bets that a no-deal Brexit was less likely and that Britain’s departure from the European Union would be delayed.

U.S. crude oil futures were steady at $56.96 per barrel, holding Wednesday’s gains of 2.5 percent.

Crude rallied after U.S. inventories unexpectedly plummeted and as Saudi Arabia brushed aside comments from U.S. President Donald Trump seeking to keep oil prices from climbing.