*

Policy uncertainty persists despite temporary optimism

*

Investment strategies shift to shorter horizons

*

Court ruling boosts Asian markets, led by South Korea,

Japan

By Rocky Swift and Ankur Banerjee

TOKYO, May 29 (Reuters) - A legal roadblock on U.S.

President Donald Trump's sweeping tariffs drew early cheer from

markets on Thursday, but the risks of extended policy and

economic paralysis cast a deeper shadow for investors worried

about the longer term.

Most equity markets are back above water after routs

following Trump's "Liberation Day" tariffs announced nearly two

months ago, only to be repeatedly delayed and adjusted since

then. The latest twist is a U.S. trade court blocking the levies

from going into effect.

Trump's administration immediately appealed the ruling, but

it breathed some optimism, however temporary, into risk assets

and the U.S. dollar, one of the biggest losers from the chaotic

tariff rollout.

The prolonged uncertainty from Wednesday's ruling, however,

will take an economic toll on firms longer-term, said David

Chao, global market strategist for Asia Pacific at Invesco.

"My big worry is that companies start to put off things like

hiring or capital expense or giving people raises for these

factories or manufacturing," he said. "And that could certainly

put a damper then on company earnings and consumption could also

be impacted by that."

Following the market revolt after his April 2 tariff shock,

Trump paused most import duties for 90 days and vowed to hammer

out bilateral deals with trade partners.

However, other than a pact with Britain this month,

agreements remain elusive and the court's stay on the tariffs

may dissuade countries like Japan from rushing into deals, Chao

added.

For now, the ruling is a "marginal positive" for sentiment

as it minimises the most bearish outlooks on growth, said Charu

Chanana, chief investment strategist at Saxo in Singapore.

"Trump may still have scope to appeal or impose narrower,

sector-specific tariffs, so policy uncertainty lingers," Chanana

said. "Businesses still don't have clarity, and the policy path

remains fluid."

Markets have swung wildly through Trump's on-and-off tariff

changes. The S&P 500 index is up 3.8% since they were

announced, European stocks are up 2.2%, while China's

benchmark indexes are nearly flat.

Gold is off record highs but still up more than 4% in

these eight weeks, and the U.S. dollar index is down 4%.

Ten-year Treasury yields have climbed 30 basis

points to around 4.5%.

News of the Court of International Trade's ruling sent stock

benchmarks across Asia higher, led by South Korea's Kospi

and Japan's Nikkei. Both are up more than 7%

from "Liberation Day" when Trump's tariff chaos and concern

about expanding U.S. deficits triggered an exit from

dollar-based securities into other assets.

For now, that pressure has abated, though caution must be

exercised in case higher courts undo the latest ruling, said

Sean Callow, senior analyst at ITC Markets in Sydney.

"The weight of money is being placed on the possibility that

U.S. courts prevent the White House from self-imposed economic

damage, brightening U.S. growth prospects and the U.S. dollar,"

he said.

Volatility and policy reversals are what define this trading

environment and investors are reacting in kind, said Ray

Sharma-Ong, head of multi-asset investment solutions for

Southeast Asia at Aberdeen Investments.

"Trade and portfolio strategies have shifted toward shorter

investment horizons," he said. "Portfolios have leaned more

toward tactical trades, with positions focused on key catalysts

and events linked to Trump's policies."

Ultimately, this trade uncertainty is toxic to investment

and economic growth, driving chief executives and policymakers

to put off major decisions, said Kei Okamura, a portfolio

manager for Neuberger Berman in Tokyo.

"This stop and go is not helpful for businesses that need to

make decisions that can take several years, even a decade, to

implement," Okamura said. "For central banks, this development

just reinforces their wait-and-see stance."