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US-China tariff pause lifts sentiment but worries linger

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Traders lower bets of Fed rate cut this year

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Focus now on economic data, US inflation set for Tuesday

(Updates to Asian afternoon)

By Ankur Banerjee and Rocky Swift

TOKYO, May 13 (Reuters) - A rally in Asian stocks ran

out of steam and the dollar stuttered on Tuesday as resurgent

worries about U.S. President Donald Trump's trade policies and

their impact on the global economy kept risk sentiment in check.

European futures pointed to a weaker open while

Chinese stocks were flat, failing to latch onto the strong Wall

Street rally that followed a 90-day halt in the Sino-U.S. trade

war.

Futures for S&P 500 and Nasdaq were also

slightly lower in Asia's afternoon, underscoring the cautious

mood in the markets.

"A de-escalation was inevitable and I think it's clear there

won't be much durable that comes out of these talks," said

Christopher Hodge, chief U.S. economist at Natixis.

"When all is said and done, tariffs will still be

dramatically higher and will weigh on U.S. growth."

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

dipped 0.2% having touched a more than six-month

high earlier in the session.

Ratings agency Fitch estimated that the U.S. effective

tariff rate is now 13.1%, a notable decline from 22.8% prior to

the agreement but still at levels unseen since 1941 and much

higher than the 2.3% it was at the end of 2024.

Worries about U.S. growth and the lack of progress in

hashing out deals between the U.S. and its trade partners have

roiled markets since Trump unveiled his sweeping tariffs in

early April.

Since then, investors have exited U.S. assets, pushing safe

havens, including the yen, Swiss franc and gold, higher.

While the dollar surged initially on Monday after the

announcement of a pause in tit-for-tat tariffs, it was weaker in

the Tuesday Asian afternoon as the rally fizzled out.

The U.S. said it will cut tariffs imposed on Chinese imports

to 30% from 145% while China said it would cut duties on U.S.

imports to 10% from 125%.

That gave markets some relief although concerns that tariffs

could hurt the global economy prevail.

Hong Kong's Hang Seng index was 1.67% lower, while

Japan's Nikkei soared over 2% to its highest level since

February 25.

"Fundamentally, uncertainty still lingers, especially around

the potential pullback in consumer and corporate spending," said

Charu Chanana, chief investment strategist at Saxo in Singapore.

"That said, institutional investors were largely on the

sidelines during this rally, holding broadly neutral on U.S.

equities. This creates the potential for aggressive dip buying

on any retracement."

US INFLATION TEST

Investor focus will now switch to details of the agreement

and what happens after 90 days.

Before that, however, the spotlight will be on U.S.

inflation data later on Tuesday.

"Should we be treated to another set of soft CPI figures, it

could allow traders to refocus on Fed policy and the potential

for cuts, and take some steam out of the dollar's rebound," said

Matt Simpson, senior market analyst at City Index.

The shift in U.S.-China trade relations has led traders to

pare Federal Reserve rate cut bets, expecting policymakers will

likely be under less pressure to ease rates to boost growth.

Traders are now pricing in 56 basis points of cuts this

year, down from over 100 basis points during the height of

tariff-induced anxiety in mid-April.

U.S. Treasury yields rose to a one-month high on Monday and

were hovering near that level in early trading on Tuesday. The

two-year yield was at 3.9873%, while the benchmark

10-year yield was last at 4.4512%.

In cryptocurrencies, bitcoin was flat at $102,676 on

Tuesday, remaining above the key $100,000 level it breached last

week.

Oil prices eased a bit on Tuesday after hitting a two-week

high in the previous session on trade deal optimism, while gold

prices recouped some of their losses having fallen 2% on Monday

as investors exited some safe havens.

(Reporing by Ankur Banerjee and Rocky Swift in Tokyo; Editing

by Muralikumar Anantharaman and Sam Holmes)