By Xie Yu
Hong Kong's benchmark stock index led international markets higher, signaling investors' relief that President Trump has refrained so far from definitive steps targeting the city or mainland China.
In early Monday afternoon trading in Hong Kong, the city's Hang Seng Index surged 3.4%. In mainland China, the benchmark Shanghai Composite added 2.2%. Indexes in South Korea, Japan and Australia rose 0.8% to 1.6%.
E-mini S&P 500 futures retreated 0.1%.
Market moves indicated a Friday statement by Mr. Trump on Hong Kong wasn't perceived as overly negative, likely because it didn't contain concrete measures on the phase-one China-U.S. trade deal or on Hong Kong sanctions, said Martin Hennecke, Asia investment director with St. James's Place Wealth Management.
Mr. Trump on Friday said the decision to stop treating Hong Kong as semiautonomous from Beijing would affect issues such as extradition arrangements, trade in certain high-technology products, and advice to U.S. travelers, but he stopped short of announcing specific actions.
Mr. Hennecke said Hong Kong was to some extent benefiting from U.S.-China tensions, which had helped create strong demand for secondary listings from Chinese companies that are already listed in the U.S.
Alex Au, managing director at Alphalex Capital Management, a hedge fund based in Hong Kong, said markets were boosted by relief that the U.S. hadn't taken tougher measures, which could potentially have devastated the Hong Kong economy and had wider regional effects. "The short-term overhang is removed," he said.
Indexes in mainland China rose, even after weekend data suggested recent factory activity was weaker than expected.
The official manufacturing purchasing managers index eased to 50.6 in May from 50.8 in April. That was still above the 50-point mark that separates expansion from contraction, but undershot the 51.5 consensus forecast of economists polled by The Wall Street Journal.
The Chinese yuan was little changed in both onshore and offshore markets, strengthening slightly offshore to trade at 7.1320 a dollar. The offshore yuan briefly weakened beyond 7.19 last week--nearing record lows--before regaining some ground.
Last week, Chinese authorities signaled their tolerance for a weaker currency by setting daily reference points for onshore trading of the yuan against the dollar at levels last seen in 2008. On Monday, the People's Bank of China set the midprice for the onshore yuan at 7.1315, little changed from Friday's fixing at 7.1316.
Monday's start-of-month rallies helped some markets in the Asia-Pacific region build on their robust recent performance, as they reversed some of the first quarter's steep losses.
Over April and May, Japan's Nikkei 225, South Korea's Kospi Composite and Australia's S&P/ASX 200 enjoyed their best two-month percentage gains since 1995, 2009 and 1994, respectively, according to Dow Jones Market Data. The Hang Seng has lagged behind recently, however, falling 6.8% in May.
Likewise, the S&P 500 edged up Friday to close out its best two-month performance since 2009, as investors were encouraged by states and businesses around the U.S. reopening.
The yield on the 10-year U.S. Treasury note ticked up to 0.652% from 0.650%. Bond yields rise as prices fall.
Brent crude, the global oil benchmark, fell 0.5% to $37.69.
Write to Xie Yu at Yu.Xie@wsj.com