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European stocks soft 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 afternoon trading)

By Samuel Indyk and Rocky Swift

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

steady on Wednesday as markets took a breather after a strong

rally on easing global trade tensions, while the dollar extended

losses from the day before as benign U.S. inflation data kept

Federal Reserve rate cuts on the table.

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

were inching higher 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, although European shares

were on pause on Wednesday.

"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 little changed on the

day, 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.

Equity futures pointed to a modestly higher start on

Wall Street.

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

rose 1.6%, while Japan's Nikkei 225

dipped 0.1%, while the broader Topix snapped a 13-day

winning run, its longest streak in nearly 16 years.

Hong Kong's Hang Seng index jumped 2.3%, lifted by

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

posted strong results. Tencent ( TCTZF ), China's biggest tech

company, posted a 13% rise in first quarter revenue on

Wednesday.

Focus this week will also be on earnings from Alibaba ( BABA )

on Thursday.

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.

"U.S. tariffs on Chinese goods are still much higher than

they were months ago," said Wei He, China economist at Gavekal

Research.

"There's still plenty of uncertainty about the outlook."

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.

ASSESSING TARIFF IMPACT

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 1% against

the yen to 146.05, and was down 0.3% 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 1.3% to $62.84 a

barrel, retreating from a two-week high hit in the previous

session.

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

trade tensions weakened its safe-haven appeal.