*

Most stock markets eke out gains for the year

*

South Korea and France notable underperformers

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High U.S. yields take heat out of end of year stock rally

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Dollar dominates, set for strong annual gain

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Gold soars 26% in bumper 2024

(Updates after early European trading)

By Ankur Banerjee and Alun John

SINGAPORE/LONDON, Dec 31 (Reuters) - World stocks held

steady on Tuesday in cautious year-end trading that has seen

investors bracing for the incoming Donald Trump administration

by scaling back bets on deep U.S. interest rate cuts in 2025,

helping the dollar stand tall against most other currencies.

Volumes were light with a holiday for the New Year looming,

with the Santa-rally largely failing to materialise as elevated

Treasury yields weigh on high equity valuations and boost the

greenback.

MSCI's world share index was flat on the day, but set to

wrap up 2025 with a 16% annual gain.

This year's rally has been largely a U.S. phenomenon, with

the S&P 500 having risen around 24% compared with an 8%

gain for MSCI's broadest index of Asia-Pacific shares outside

Japan, and just 5% for Europe's STOXX 600.

But the mood latterly has been more cautious on the back of

higher U.S. Treasury yields. The yield on the 10-year note

reached 4.64% late last week, its highest since May.

This marks something of a change as until late December, the

U.S. benchmark yield had spent all of the second half of 2024

below 4.5%.

This upward pressure, said Lee Hardman, senior currency

analyst at MUFG, "reflects investor unease over the potential

inflationary impact from the incoming Trump administration's

policy agenda."

Investors anticipate President-elect Trump's policies around

looser regulation, tax cuts, tariff hikes and tighter

immigration to be both pro-growth and inflationary, which in

theory would keep U.S. yields high.

"The Fed has already displayed more caution over cutting

rates further next year in light of potential policy changes,"

said Hardman.

But in a sign of end-of-year positioning, the 10-year yield

dipped three basis points on Tuesday, after a seven-bp drop on

Monday, to trade at 4.52%.

Similarly all three major U.S. indexes closed on Monday with

sharp losses mainly due to end-of-year tax positioning,

valuations worries and uncertainties about 2025.

CHINA

The only economic indicators of note from Tuesday came from

China, where data showed manufacturing activity barely grew in

December, although services and construction recovered,

suggesting policy stimulus is trickling into some sectors, as

the economy braces for new trade risks.

The National Bureau of Statistics purchasing managers' index

slowed to 50.1 in December from 50.3 a month prior, barely

holding above the 50-mark denoting growth and missing a median

forecast of 50.3 in a Reuters poll.

Onshore Chinese blue chips shed 1.6%, while Hong

Kong just held in positive territory.

For all of 2024 the CSI 300 rose 14%, its first annual gain

following an unprecedented three-year decline. The Hang Seng

Index gained 18% after four years of declines.

South Korea's KOSPI was the worst-performing stock

market in Asia this year with a decline of 10% as political

turmoil took its toll on investor sentiment.

Politics accounted for some underperformance in Europe too,

and France's main index fell 2.8% in 2024, as lawmakers

continue to haggle over the 2025 budget after an inconclusive

election and the collapse of one cabinet under Michel Barnier.

In contrast, large jumps by a handful of Frankfurt-listed

names, such as software firm SAP means the German

benchmark is up over 18% on the year, despite a political vacuum

there ahead of February's election.

In currency markets, 2024 has all been about the dollar,

which gained against all other major developed-market

currencies, as higher U.S. yields, and outperforming stock

markets, drove inflows to the U.S.

The dollar index which measures the U.S. currency against

six others, dipped 0.16% on Tuesday, but held close to the two

year high touched in November. The index is on course to rise

6.5% this year.

In commodities, oil prices were poised for a second straight

year of decline on demand concerns in top consuming countries.

For the year, Brent crude futures declined 3.4%, while

U.S. West Texas Intermediate crude was down 1%.

Both eked out small gains on Tuesday.

But gold had a banner year, surging over 26% in the year,

its strongest annual performance in over a decade on safe-haven

demand amid geopolitical tensions around the world as well as

monetary policy easing.

(Editing by Shri Navaratnam and Hugh Lawson)