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Asian stock markets : https://tmsnrt.rs/2zpUAr4

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Dollar up as Trump talks of tariffs on steel, aluminium

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Markets see less scope for Fed rate cuts this year

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Nikkei near flat, S&P 500 futures recover early losses

(Updates prices to Asia afternoon)

By Wayne Cole

SYDNEY, Feb 10 (Reuters) - Asian shares dithered and the

dollar edged higher on Monday after U.S. President Donald Trump

warned more tariffs were imminent including on steel and

aluminium, an inflationary move that could limit the scope for

rate cuts.

Speaking to reporters on Air Force One, Trump said he would

announce on Monday 25% tariffs on all steel and aluminium

imports into the U.S., and reveal other reciprocal tariffs on

Tuesday or Wednesday.

The comments came just after German Chancellor Olaf Scholz

said the European Union was ready to respond "within an hour" if

the U.S. levied tariffs on European goods, highlighting the

risks of an escalating trade war.

China's retaliatory tariffs on some U.S. exports are due to

take effect on Monday, with no sign as yet of progress between

Beijing and Washington.

"These could be a strategic negotiating tool for President

Trump or the beginning of a prolonged trade war," said Stephen

Dover, head of the Franklin Templeton Institute.

"Nearly half of U.S. imports serve as inputs for domestic

companies, meaning businesses will either have to pass higher

costs to consumers, absorb lower margins or adjust supply chains

entirely."

Analysts assume currencies from those countries targeted by

Trump will tend to fall against the dollar to help compensate in

part for the taxes, keeping their exports competitive.

Tariffs could also put upward pressure on U.S. inflation and

further limit room for the Federal Reserve to ease policy.

Markets had already scaled back expected rate cuts this year

to just 36 basis points, from around 42 basis points, following

an upbeat payrolls report on Friday.

Fed Chair Jerome Powell is due to appear before the House of

Representatives on Tuesday and Wednesday and the impact of

tariffs on policy is sure to be a hot-button issue.

His Wednesday testimony will also follow consumer price data

for January which might hint at early pressure given anecdotal

evidence of firms raising prices in anticipation of the taxes.

A survey of consumers out on Friday showed a sharp rise in

inflation expectations for the year ahead, though the

longer-term outlook was steadier.

DOLLAR UP WITH YIELDS

Investors reacted by pushing the dollar higher, with its

index firm at 108.265. The euro dipped 0.1% to $1.0315

, while the trade-exposed Australian dollar eased to

$0.6270.

The dollar bounced 0.3% on the yen to 151.87,

regaining some of the ground recently lost to speculation the

Bank of Japan will raise rates in the next few months.

MSCI's broadest index of Asia-Pacific shares outside Japan

lost 0.3%, while Japan's Nikkei inched

up 0.1%. South Korea's main index fell 0.1%, led by

losses in steel makers.

Chinese blue chips were little changed, with

worries about deflation soothed by data showing consumer

inflation accelerated to its fastest in five months in January.

Beijing again set a firm fix for its yuan currency, but it

still eased to a three-week low around 7.3078.

EUROSTOXX 50 futures added 0.2%, as did FTSE

futures, while DAX futures rose 0.1%.

Wall Street futures started lower but soon rallied as

investors looked ahead to another busy week of earnings. S&P 500

futures firmed 0.3%, while Nasdaq futures added

0.5%.

Shares had been roiled by some mixed earnings numbers last

week, though overall earnings per share growth is running at 12%

and above early expectations of 8%.

"Tariffs are a key downside risk to our 2025 EPS forecasts,"

warned analysts at Goldman Sachs, who estimated that the

effective U.S. tariff rate would likely rise by five percentage

points, knocking 1% to 2% off earnings per share.

"Heightened policy uncertainty represents downside risk to

valuation because it raises the equity risk premium and implies

downward pressure on fair value," they said in a note.

The risk of reigniting inflation also slugged Treasuries,

and yields on 10-year notes were at 4.490%, from

last week's low of 4.400%.

The strength of the dollar and higher yields have not

prevented gold prices from reaching record highs at $2,886 an

ounce, helped in part by talk Trump might impose tariffs

on the metal.

This has led to stepped up demand for physical gold in

London to be shipped to the U.S. to avoid any new taxes,

reflected by selling of LME gold futures to buy Comex futures.

The metal was up 0.5% at $2,876 per ounce on Monday.

Oil prices have not fared so well given worries a trade war

will hurt global economic growth and thus demand for energy.

Still, the market was due a bounce after three weeks of

losses and Brent rallied 51 cents to $75.17, while U.S.

crude rose 45 cents to $71.45 per barrel.