Asian markets on Thursday recovered from the previous day’s hammering, oil prices bounced and the dollar extended a rally on the back of expectations the US is better prepared to deal with a trade war with China.

While investors remain on edge about a damaging standoff between the world’s two economic superpowers, there are hopes the two sides will avoid an escalation despite Donald Trump threatening tariffs on a further $200 billion of Chinese goods.

The optimism helped bargain buying Thursday, with Tokyo ending more than one percent higher and Hong Kong adding 0.6 percent.

Shanghai jumped 2.2 percent as the Chinese central bank set the struggling yuan’s US dollar fix at a strong level in a bid to soothe concerns about its recent sell-off, while the official Xinhua news agency in a commentary said the country’s equity market fluctuations were controllable.

The remarks suggested leaders were ready to step in if needed, analysts said.

Sydney, Singapore, Seoul and Taipei were also deep in positive territory.

However, Stephen Innes, head of Asia-Pacific trading at OANDA, warned “we are little more than a headline away from another risk-off episode” and added that markets would likely remain volatile for some time.

“The prospects of another round of US tariffs directed at China have resurrected fears that the trade skirmish between Washington and Beijing could escalate with some investors now fearing a full-blown global trade war could be a reality,” he said.

“But the most damning signal is that dialogue… is pretty much non-existent and with a diplomatic solution appearing more unlikely as the days go by markets will remain on the defensive.”

Japan’s Nikkei has been given an extra nudge by a weaker yen, which helps exporters.

Despite the currency’s popularity as a safe haven in times of turmoil, the yen is at a six-month low against the dollar, which is getting support from the robust US economy.

While most other countries are seeing improvement, data shows the US is surging as jobs creation picks up and wages rise. News that producer price inflation hit a more than six-year high in June added to expectations the Federal Reserve will hike interest rates again soon, in turn strengthening the dollar.

The strong readings coming out of Washington suggest the US is in a much stronger position to fight a trade war with China, which is battling slowing growth and a crippling debt mountain among other things.

But Marito Ueda, senior dealer at FX Prime, said there are also hopes for a China-US deal to avoid a trade war.

“Even though concerns remain over US-China trade frictions, the dollar remains stronger (against the yen) as traders believe there will be a political settlement at some point to avoid an all-out trade war,” he told AFP.

The US unit was also up against the euro and most other high-yielding currencies.

On oil markets both main contracts edged up after being sent into freefall Wednesday — Brent dived around six percent and WTI shed about five percent — by worries about the stronger dollar and the impact of a trade war on demand.

The selling was fanned by news that major producer Libya had resumed exports from four eastern ports following a disruption caused by clashes in the war-torn country.

In Hong Kong, Chinese telecoms equipment maker ZTE cruised 25 percent higher as it moved a step closer to having US sanctions lifted by signing an agreement to put $400 million in escrow to cover any future violations.

The move comes after it agreed to pay a $1 billion fine and make the escrow placement in return for the lifting of a seven-year ban on US firms selling to it, which had put in on the edge of collapse.