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Dollar set for worst weekly loss in two months

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Chinese stocks get a boost from Trump comments

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Yen volatile after expected rate hike from BOJ

By Amanda Cooper and Elizabeth Howcroft

LONDON/PARIS, Jan 24 (Reuters) - U.S. stocks looked set

to pull back modestly from their all-time highs on Friday, as a

degree of caution set in after President Donald Trump's latest

comments on tariffs and trade.

The dollar headed for its biggest weekly drop in two months,

under pressure from a greater sense of confidence among

investors that the Federal Reserve may keep cutting interest

rates this year.

Futures on the S&P 500 and Nasdaq were down

around 0.1%, suggesting a slightly weaker start to trading on

Wall Street later. A survey of U.S. business activity for early

January later could show a modestly softer pace of growth in

both the manufacturing and services sector.

Trump told business leaders at the World Economic Forum in

Davos, Switzerland, on Thursday that he wanted to lower global

oil prices, interest rates and taxes.

In an interview with Fox News on Thursday evening, Trump

said his recent conversation with President Xi Jinping was

friendly and he thought he could reach a trade deal with China.

"But we have one very big power over China, and that's

tariffs, and they don't want them, and I'd rather not have to

use it, but it's a tremendous power over China," he said.

China's stock markets and currency rallied on the back of

his comments, leaving the blue chip index up 0.8% and

the yuan strengthened against the dollar, which fell

0.5% to 7.2492 in the offshore market.

Oil prices, meanwhile, initially fell after Trump's

comments, but had recovered some poise by Friday, leaving U.S.

crude futures up 0.4% at $74.90 a barrel and Brent crude

up 0.5% at $78.70.

Amelie Derambure, Senior Multi-Asset Portfolio Manager at

Amundi in Paris said Trump's pro-America policies require lower

oil prices.

"These types of policies could also benefit other players in

the world, like Europe for instance, if we have a lower oil

price that's going to benefit Europe as well - so at last there

is something that he wants to implement that is not detrimental

to Europe," she said.

"It shows that he's willing to negotiate and he wants to be

maybe a bit more subtle this time."

European stocks reflected this greater optimism. The STOXX

600 rose 0.3% on the day, driven by a burst higher in

luxury goods retailers after solid earnings from Burberry ( BBRYF )

.

BlackRock chief executive Larry Fink told a panel at the

World Economic Form in Davos on Friday that it could be time to

start investing money in Europe again.

"There's too much pessimism on Europe," he said during a

panel debate on the global economic outlook. "I believe it's

probably time to be investing back into Europe," he said, adding

there was still progress to be made in areas such as capital

markets union.

Surveys earlier on Friday showed euro zone businesses saw a

modest return to growth at the start of the new year.

On the currency markets, the dollar weakened against most

major currencies, leaving the U.S. currency index down 0.4% and

heading for a weekly decline of 1.6%.

The yen was the exception, leaving the dollar up 0.17% on

the day at 156.316 after the U.S. currency pulled off a session

low of 154.845 following the Bank of Japan's widely-expected

rate hike.

The BOJ raised interest rates to their highest since the

2008 global financial crisis, with attention now shifting to any

clues from BOJ Governor Kazuo Ueda in his briefing on the pace

and timing of further increases.

Treasury yields, which have retreated from January's highs

as some of the worry about a renewed spike in inflation has

faded, were steady on Friday.

The U.S. 10-year Treasury yield was little

changed at 4.6459%, below last week's 14-month high of 4.809%.

The European Central Bank and the Federal Reserve are due to

meet next week as policymakers digest early moves of the Trump

administration.

(Additional reporting by Elizabeth Howcroft in Paris; Editing

by Toby Chopra)