*

Asian stocks edge up amid U.S. inflation data and trade

war

pause

*

Fed cautious on rate cuts due to economic uncertainty from

tariffs

*

Dollar remains under pressure as investors reduce U.S.

asset

holdings

By Rocky Swift

TOKYO, May 14 (Reuters) - Stocks edged up in Asia on

Wednesday while the dollar wobbled as relatively benign U.S.

inflation data fed into prospects of rate cuts by the Federal

Reserve later this year even as investors were still gauging if

the worst of the trade conflicts was over.

As U.S. President Donald Trump's global trade war appeared

to hit pause, led by a truce in the tariff spat between China

and the United States, financial markets remained nervous about

the outlook.

"I'm just a little bit cautious here about chasing the rally

in stocks at this level," said IG analyst Tony Sycamore. "We've

got to wait to see what happens with regards to headlines and

the framework around further tariff negotiations with other

countries, but you know at this point of time the worst-case

scenario has been priced out."

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

was up 0.9% in early trade after U.S. stocks

climbed back into positive territory for the year, erasing

losses triggered by Trump's chaotic rollout of sweeping tariffs.

Hong Kong's Hang Seng index rose in early trading

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 retreats in both European

and U.S. markets.

Data overnight 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.

Global sentiment turned up after a trade deal with the U.S.

and Britain last week, and improved further when U.S. and China

said on Monday they would pause their trade war for 90 days,

bringing down reciprocal duties and removing other measures

while they negotiate a more permanent arrangement.

Trump has also touted "potential deals" with India, Japan

and South Korea.

The Fed has warned of rising economic uncertainty,

signalling it's prepared to wait for some time to assess the

impact of U.S. tariffs before moving to cut interest rates

again.

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

back of the economic and policy uncertainty, dropped 0.2%

against the yen to 147.13, and was little changed at

$1.1186 against the euro. The dollar index was little changed

after a 0.8% slide in the previous session.

Japan's Nikkei gauge slid 0.7%, trimming a 1.4% advance on

Wednesday.

With the U.S. inflation figures behind markets, 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.

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.

The yield on benchmark 10-year Treasury notes

slid 2 basis points to 4.4768%.

U.S. crude dipped 0.3% to $63.48 a barrel, while spot

gold was slightly lower at $3244.79 per ounce.

(Editing by Shri Navaratnam)