Sept 2 (Reuters) - U.S. investors returning from Labor

Day break on Tuesday were hit with fresh uncertainty in trade

policy after a federal appeals court ruled most of President

Donald Trump's sweeping tariffs illegal.

The court allowed the tariffs to remain in place through

October 14 to give the Trump administration a chance to file an

appeal with the U.S. Supreme Court.

Most market participants said they were in a wait-and-watch

mode for now, as the case is expected to head to the U.S.

Supreme Court, but the brewing uncertainty adds to markets' list

of worries, including concerns around the Federal Reserve's

independence and increasing risks of U.S. stagflation.

Wall Street's main indexes fell about 1% on Tuesday, while

longer-dated U.S. Treasury bond yields jumped on fiscal worries.

Trump's steep tariffs on trading partners triggered market

volatility in early April, but clearer tariff guidance and hopes

of rate cuts have since helped push stocks back toward record

highs.

"It's nothing we're trading off of. We've just got to let it

play out," said Jim Baird, chief investment officer at Plante

Moran Financial Advisors.

"What it will mean in the near term remains to be seen. How

will our trade partners react to that? How quickly will this

make its way through the Supreme Court now? Lots of questions,

not a lot of answers."

Treasury Secretary Scott Bessent said on Monday he was

confident the Supreme Court would uphold Trump's use of

emergency powers to impose broad tariffs, but said the

administration has a backup plan if it does not.

"Tariffs are a core belief of the current administration and

we think it makes sense to assume that tariffs, one way or

another, are likely to remain a part of the US equity market

backdrop for the foreseeable future," RBC's Head of U.S. Equity

Strategy Lori Calvasina said in a note.

(Reporting by Johann M Cherian, Shashwat Chauhan and Medha

Singh in Bengaluru; Editing by Shinjini Ganguli)