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European stocks steady after strong rally

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Fed cautious on rate cuts due to tariff uncertainty

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Dollar remains under pressure

(Updates for European morning trade)

By Samuel Indyk and Rocky Swift

LONDON/TOKYO, May 14 (Reuters) - European stocks were

little changed as markets took a breather after a strong rally

on easing global trade tensions, while the dollar extended

losses from the day before as relatively benign U.S. inflation

data kept Federal Reserve rate cuts on the table.

Stocks climbed overnight in Asia while U.S. stock futures

were flat after the S&P 500 moved into positive territory

for the year on Tuesday.

As a truce in the tariff spat between China and the United

States appeared to hit pause in the global trade war, investors

have pushed global equities higher.

"It's all about the change in risk appetite," said Lars

Skovgaard, senior investment strategist at Danske Bank.

"I have a hard time seeing that we'll go back to this

extreme political noise," he added.

Europe's STOXX 600 was last down less than 0.2%,

taking a breather after its recent rally, having jumped over 17%

since its trough on April 9, the day U.S. President Donald Trump

announced he would be pausing most of the reciprocal tariffs on

U.S. trading partners.

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

rose 1.4%, while Japan's Nikkei 225

dipped 0.1%.

Hong Kong's Hang Seng index jumped 2%, lifted by tech

stocks after Chinese e-commerce retailer JD.com ( JD ) posted

strong results. Investor focus this week will be on earnings

from Tencent ( TCTZF ) and Alibaba ( BABA ).

Equity futures pointed to a flat start on Wall Street

.

Data on Tuesday showing softer-than-expected U.S. consumer

inflation also provided some relief to investors worried about

the inflationary impact of U.S. tariff policies, which had

severely undercut expectations of near term Fed rate cuts.

Though traders expect inflation to pick up as tariffs lift

import costs, the uncertainty over the outlook remains as

Washington moves ahead to strike deals with its trading

partners.

Trump in an interview on Tuesday said he could see himself

dealing directly with Chinese President Xi Jinping on details of

a trade pact. His touted "potential deals" with India, Japan and

South Korea are still pending.

"We have lingering headwinds and uncertainty when it comes

to trade negotiations with other economies and we still have a

90-day deadline hanging over U.S.-China trade relations," said

Frederic Neumann, chief Asia economist at HSBC.

The Fed has warned of rising economic uncertainty,

signalling it is prepared to wait to assess the impact of U.S.

tariffs before moving to cut interest rates again. Fed Chair

Jerome Powell is scheduled to give remarks on Thursday.

The U.S. dollar, which has taken a beating recently on the

back of the economic and policy uncertainty, dropped 0.7%

against the yen to 146.40, and was down 0.4% against the

euro. The dollar index slipped 0.4%, adding to a 0.8%

slide in the previous session.

Global asset managers held their biggest underweight

position in the dollar in 19 years in May, as Trump's trade

policy cut investor appetite for U.S. assets, Bank of America's

global fund manager survey (FMS) showed on Tuesday.

With the U.S. inflation figures out, the next major signal

for U.S. economic health is retail sales data for April due on

Thursday. The same day, talks are planned between Ukraine and

Russia in Istanbul with hopes of a ceasefire three years into

the deadliest conflict in Europe since World War Two.

In commodities, U.S. crude dipped 0.3% to $63.49 a

barrel, but held near a two-week high.

Spot gold fell 0.3% to $3,237 per ounce as easing

trade tensions weakened its safe-haven appeal.