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Rising Middle East tension dents sentiment, lift oil, gold

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Markets give lukewarm reception to US-China truce

agreement

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Trump's latest tariff salvo unnerves investors

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Soft US CPI sets stage for Fed meeting next week

By Ankur Banerjee and Johann M Cherian

SINGAPORE, June 12 (Reuters) - Global stocks and the

dollar slipped on Thursday as investors sized up a benign U.S.

inflation report and the fragile trade truce between Washington

and Beijing, while rising tensions in the Middle East and

lingering tariff anxiety dented risk sentiment.

Attention in financial markets this week has been on the

U.S.-China trade talks which culminated in a framework agreement

that would remove Chinese export restrictions on rare earth

minerals and allow Chinese students access to U.S. universities.

"We made a great deal with China. We're very happy with it,"

said U.S. President Donald Trump. Markets though were guarded in

their response, awaiting fuller, concrete details of the

agreement and remained wary of another flare up.

Trump also said the U.S. would send out letters in one to

two weeks outlining the terms of trade deals to dozens of other

countries, which they could embrace or reject, adding yet

another dose of uncertainty in the markets.

"The U.S. China deal really just leaves the tariffs in place

after they've been cut back following the Geneva meeting, so it

doesn't really change things," said Shane Oliver, head of

investment strategy and chief economist at AMP Capital.

"Ultimately the trade tension is yet to be resolved between

the U.S. and China."

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

was 0.3% lower in early trading after hitting a

three year-high on Wednesday. Japan's Nikkei slipped

0.7%, while U.S. and European stock futures

fell.

China's blue-chip stock index fell 0.37%, moving

off the near three-week top it touched in the previous session.

Hong Kong's Hang Seng index was down 0.74%, also inching

away from Wednesday's three-month high.

Trump's erratic tariff policies have roiled global markets

this year, prompting hordes of investors to exit U.S. assets,

especially the dollar, as they worried about rising prices and

slowing economic growth.

The euro, one of the beneficiaries of the dollar's

decline, rose to a seven-week high and was last at $1.1512. The

Japanese yen was 0.4% firmer at 144.03 per dollar.

That pushed the dollar index, which measures the U.S.

currency against six other key rivals, to its lowest level since

April 22. The index is down 9% this year.

Data on Wednesday showed U.S. consumer prices increased less

than expected in May as cheaper gasoline partially offset higher

rents, but inflation is expected to accelerate in the coming

months on the back of the Trump administration's import tariffs.

The soft inflation report led Trump to renew his call for

the Federal Reserve to push through a major rate cut. The

president has been pressing for rate cuts for some time even as

Fed officials have shrugged off his comments.

Traders are pricing in a 70% chance of a quarter-point

reduction in the Fed policy rate by September. Policymakers are

widely expected to keep rates unchanged next week.

AMP's Oliver said the higher prices will flow through either

in the form of higher inflation or lower profit margins.

"I suspect it's probably going to be a combination of the

two. Therefore it makes sense for the Fed to wait and see what

happens rather than rushing into a rate cut."

In commodities, oil prices were pinned at two-month highs,

close to $70 a barrel, on worries of supply disruptions in the

Middle East after Iran said it will strike U.S. bases in the

region if nuclear talks fail and conflict arises with

Washington.

Gold prices also got a boost from safe-haven flows, with

spot gold up 0.5% at $3,370.29.

(Editing by Shri Navaratnam)