(Updates to mid-afternoon)

*

Trump tariff announcements prompt global stock sell-off

*

Mexico tariffs paused; Sheinbaum to boost border security

*

U.S. factory activity returns to expansion

*

Gold touches record high

By Stephen Culp

NEW YORK, Feb 3 (Reuters) - U.S. stocks joined a

worldwide sell-off on Monday amid fears that U.S. President

Donald Trump's tariffs on Canada, Mexico and China could ignite

a global trade war, but their losses eased after tariffs on

Mexican imports were paused.

While all three major U.S. stock indexes veered sharply lower

after the opening bell, they partially recovered after it was

announced that tariffs on Mexican imports would be paused for a

month as Mexican President Claudia Sheinbaum agreed to reinforce

its northern border with the United States.

The S&P 500 were still in negative territory, while the Dow

turned nominally higher.

Meanwhile, benchmark Treasury yields declined as investors

sought safety in U.S. government debt.

"I think you see what we should get very used to, which is

this kind of roller coaster of public negotiation around tariffs

and other policy," said Ross Mayfield, investment strategy

analyst at Baird in Louisville, Kentucky. "The market is back to

the realization that this is very much a continuation of what we

saw in (Trump's) first term, how they're kind of publicly

negotiating these quote-unquote deals."

"It's not stepping out on a limb to say that we should

expect heightened volatility across asset classes in this new

environment, especially early on as getting the rules of the

game are set up," Mayfield added.

On the economic front, factory data showed U.S. manufacturing

activity expanded for the first time since October 2022, and

spending on residential construction projects rebounded.

"(These reports) could be taken negatively because they

imply that the Fed has another reason not to be lowering rates

anytime soon," said Sam Stovall, chief investment strategist of

CFRA Research in New York. "Because if the economy is

strengthening, that means that more stimulus would be

inflationary."

The Dow Jones Industrial Average rose 3.46 points, or

0.01%, to 44,548.12, the S&P 500 fell 22.76 points, or

0.38%, to 6,017.77 and the Nasdaq Composite fell 141.85

points, or 0.72%, to 19,485.59.

European shares suffered their biggest drop of the year so

far, with automakers leading declines amid fears that Trump's

recent tariff moves would swell into a broader trade war..

MSCI's gauge of stocks across the globe fell

7.61 points, or 0.88%, to 861.43.

The STOXX 600 index fell 0.87%, while Europe's

broad FTSEurofirst 300 index fell 17.47 points, or

0.81%.

Emerging market stocks fell 18.60 points, or

1.70%, to 1,074.77. MSCI's broadest index of Asia-Pacific shares

outside Japan closed lower by 2.04%, to 564.90,

while Japan's Nikkei fell 1,052.40 points, or 2.66%, to

38,520.09.

Yields on 10-year Treasuries dropped as investors flocked to the

safety of U.S. government debt, and short-dated yields rose amid

tariff-related inflation fears.

The yield on benchmark U.S. 10-year notes fell

1.6 basis points to 4.551%, from 4.567% late on Friday.

The 30-year bond yield fell 3.2 basis points to

4.7795% from 4.812% late on Friday.

The 2-year note yield, which typically moves in

step with interest rate expectations for the Federal Reserve,

rose 3 basis points to 4.268%, from 4.238% late on Friday.

The dollar reversed its earlier gain and was last weaker

against a basket of world currencies in the wake of the Mexico

tariff pause.

The dollar index, which measures the greenback

against a basket of currencies including the yen and the

euro, fell 0.51% to 108.95, with the euro down 0.73% at

$1.0286.

The Mexican peso strengthened 1.14% versus the

dollar at 20.441.

The Canadian dollar weakened 0.22% versus the

greenback to C$1.46 per dollar.

In cryptocurrencies, bitcoin fell 0.91% to

$101,215.03. Ethereum declined 17.13% to $2,749.05.

Oil prices reversed an initial dip but settled higher after

the U.S. tariffs on Mexican imports were paused.

U.S. crude rose 0.87% to $73.16 a barrel while Brent

rose to $75.96 per barrel, up 0.38% on the day.

Gold touched a record high as tariff jitters prompted

safe-haven spending.

Spot gold rose 0.66% to $2,819.50 an ounce. U.S. gold

futures rose 0.81% to $2,835.30 an ounce.