* China hikes short-term rates, hitting riskier assets
* Trump trade hits pause button
* Strong U.S. jobs data may force Fed's hand
* Oil edges higher as geopolitical tensions rise
By Saikat Chatterjee
HONG KONG, Feb 3 (Reuters) - Chinese stocks slumped on Friday, sending Asian markets skidding for their biggest losses in two weeks after Beijing unexpectedly raised short-term interest rates, adding to growing concerns about U.S. President Donald Trump's aggressive policies.
European stocks are expected to take Asia's lead with major bourses set to open in the red before a key U.S. jobs report sheds further light on the outlook for U.S. monetary policy in the coming months.
On the first day of trading after a week-long break for the Lunar New Year, Chinese equities tumbled and the currency weakened after the People's Bank of China raised the interest rates on open market operations by 10 basis points.
Two banking sources also told Reuters it had raised the lending rates on its standing lending facility (SLF) short-term loans, suggesting policymakers were tugging multiple levers to slow down a rampant build-up in debt among Chinese corporates.
"My interpretation of the higher interest rates in China is that the regulator does not want corporates to over-leverage, which could be the case if borrowing cost is low together with ample liquidity," said Iris Pang, senior economist, greater China at Natixis in Hong Kong.
The latest increases in market interest rates comes after the central bank raised rates on its medium-term loan facility (MLF) in late January. That was the first time it has raised one of its policy interest rates since July 2011.
Analysts say the fresh increases mark a step up in policy tightening for domestic markets and appears to be aimed at bolstering the yuan after record capital outflows in recent months. The Institute of International Finance estimated capital outflows from China surged last year to a record $725 billion.
"The signal is very clear," said Zhou Hao, senior emerging market economist, Asia, for Commerzbank in Singapore. "I think it's targeted tightening compared to the last cycle in 2010-2013."
Chinese yields snapped a three-year declining trend in late October with five-year benchmark yields rising by 65 basis points since then. Ten year yields have surged by a greater magnitude. They extended their rise on Friday.
TRUMP TRADE TOP
The China news couldn't have come at a worse time for risky assets just as a rally in U.S. equities and the dollar - the so-called "Trump trade" - showed further signs of fizzling, hurt by anxiety about the Trump administration's tough stance on immigration, trade and aggressive posturing in international relations.