Following a fall in USA markets overnight, the Australian share market looks set to open lower this morning.
US President Donald Trump said Washington would respond strongly should Beijing impose national security laws for Hong Kong, with a Chinese official saying in turn that it was ready to escalate the dispute.
Simmering tensions between the world's two biggest economies over the origin of the novel coronavirus have slowed a Wall Street rally this month, but the S&P 500 and Nasdaq have still inched up to hit multi-month highs, amid some optimism over economic recovery.
"It seems like China is going to be used as a punching bag for the upcoming elections", TrimTabs Asset Management chief executive Bob Shea told AAP. "You don't score any points for that".
The Dow Jones Industrial Average fell 0.41 per cent to end at 24,474.12 points, while the S&P 500 lost 0.78 per cent to 2,948.51.
The S&P 500 opened lower by 0.46 points, or 0.02 percent, at 2,948.05, while the Nasdaq Composite dropped 6.33 points, or 0.07 percent, to 9,278.55 at the opening bell.
The majority of the 11 S&P sector indexes declined, with energy, utilities, materials consumer staples, and technology each down 1 per cent or more.
Best Buy Co Inc fell 4.2% as the electronics retailer reported a 5.3% drop in quarterly same-store sales due to the virus, while L Brands Inc surged 16.7% despite posting worse-than-expected quarterly results.
Discount chain owner TJX jumped almost 7 per cent to a more than two-month high after it flagged strong sales at its stores that have reopened after lockdowns.
Declining issues outnumbered advancing ones on the NYSE by a 1.00-to-1 ratio; on Nasdaq, a 1.40-to-1 ratio favoured decliners.