*

Japan's Nikkei rises in relief rally after priced-in

election

*

US dollar subdued as investors await tariff clarity

*

Fed independence remains a worry for investors

(Updates to Asia afternoon)

By Ankur Banerjee

SINGAPORE, July 22 (Reuters) - Asian share markets

drifted lower after scaling a near four-year peak on Tuesday

ahead of a slate of corporate earnings, while investors took

stock of tariff negotiations between the U.S. and its trading

partners.

The dithering mood is set to continue in Europe where

the focus will be on earnings from firms including SAP

and UniCredit. EUROSTOXX 50 futures and DAX

futures both dipped 0.5%, while FTSE futures

eased 0.3%.

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

hit its highest level since October 2021 in

early Asian hours but was last down 0.4%. The index is up nearly

16% this year.

The S&P 500 and the Nasdaq notched

record-high closes on Monday.

The Japanese markets returned to action after a holiday on

Monday following the weekend's election where the ruling

coalition suffered a defeat in upper house elections, although

Prime Minister Shigeru Ishiba vowed to remain in his post.

Japanese shares briefly jumped at the open

but reversed course to trade lower by Tuesday afternoon, as the

election results were largely priced in and were not as bad as

investors had feared.

The yen rallied 1% on Monday, recouping some of

the losses from past weeks and was last slightly weaker at

147.73 per dollar.

Kristina Clifton, an economist at the Commonwealth Bank of

Australia, said the weakening of Ishiba's leadership will open

the door to more fiscal expansion that is negative for Japanese

assets, including the yen.

"The bottom line is longer term Japanese government bond

yields and JPY can fall if concerns about Japan's fiscal

spending deepen."

Investor focus has been on tariff negotiations ahead of the

August 1 deadline with the European Union exploring a broader

set of possible countermeasures against the United States as

prospects for an acceptable agreement with Washington fade.

The most important deals for the global outlook are with the

EU and Japan, CBA's Clifton said.

"The USD reaction to the announcement of trade deals with

these countries would depend on the details of the deals in our

view," Clifton added, noting the dollar could turn down again

against the euro and the British pound.

The euro was steady at $1.1689, after rising 0.5%

in the previous session but still away from the near four-year

high it touched at the start of the month. The single currency

is up 13% this year as investors look for alternatives to U.S.

assets bruised by tariff uncertainties.

The dollar index, a measure against six other key

currencies, was at 97.905.

Investors are awaiting results this week from Wall Street

giants Alphabet and Tesla, as well as from

European heavyweights LVMH, and Roche, as

uncertainty over tariffs clouds the outlook.

The rumblings around the Federal Reserve's independence and

whether U.S. President Donald Trump will fire Fed Chair Jerome

Powell have kept investors on tenterhooks in recent weeks.

Trump appeared near the point of trying to fire Powell last

week, but backed off with a nod to the market disruption that

would likely follow.

U.S. Treasury Secretary Scott Bessent said on Monday the

entire Federal Reserve needed to be examined as an institution

and whether it had been successful, further exacerbating

concerns about the independence of the U.S. central bank.

The Fed is widely expected to hold rates steady in its July

meeting but might lower rates later in the year. Market focus

will be squarely on Powell's speech later on Tuesday for clues

about when the Fed might ease policy.

Goldman Sachs strategists expect the Fed to deliver three

consecutive 25-basis-point cuts starting in September, "provided

inflation expectations remain in check amidst worries about Fed

independence."

In commodities, Brent crude futures fell nearly 1%

to $68.56 a barrel, while U.S. West Texas Intermediate crude

slipped 1% to $66.51 per barrel.