(Updates throughout with early European trading)

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European shares up, dollar rally pauses

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More Trump tariff announcements expected

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U.S. inflation data in focus after Powell's testimony

By Amanda Cooper

LONDON, Feb 12 (Reuters) - Stocks and dollar held steady

on Wednesday ahead of U.S. inflation data that could uphold

Federal Reserve Chair Jerome Powell's view that there is no need

to rush to cut rates, while a rise in Treasury yields knocked

gold back from record highs.

An air of caution among investors kept action across the

market subdued, given the uncertainty over U.S. President Donald

Trump's threat last week to impose reciprocal tariffs on any

country that applies duties to U.S. imports. His advisers are

said to be finalising plans.

Trump on Monday announced 25% tariffs on steel and aluminium

up from 10%, with no exceptions, as well as product-specific

exclusions, though said he was considering an exemption for

Australia.

With the risk that Trump's tariffs pose to the U.S. and

other economies, investors have slowly scaled back their

expectations for Fed rate cuts this year, with June being the

most likely timing for the next drop.

At his semi-annual testimony to Congress on Tuesday, Powell

said little to refute this view, which prompted some traders to

take profit on their dollar positions.

"We are in a pretty good place with this economy", he said,

noting that the Fed was in no hurry to make further interest

rate cuts, but stood ready to do so if inflation declines

further or the job market weakens.

MSCI's All-World index, which last week hit

record highs, was up 0.1%, while in Europe, the STOXX 600

rose 0.2%, helped by upbeat results from Dutch brewer

Heineken and UK homebuilder Barratt Redrow ( BTDPF )

In addition to January's CPI report, Powell will deliver a

second day of testimony on Wednesday.

"Normally the second act doesn't get as many headlines but

there's a chance today's CPI may solicit a slightly different

tone or encourage different questions. All depends on where the

release is relative to expectations," Deutsche Bank strategist

Jim Reid said.

Nasdaq futures were little changed, while S&P 500

futures slipped 0.08%.

TARIFF FATIGUE

Some analysts have said much of Trump's rhetoric on tariffs

appears to be more a negotiating tool, as many of his more

aggressive threats have ended up being watered down, delayed or

not materialising at this point. This has kept European equities

and the euro supported to an extent.

"The challenge for traders is that, despite some fatigue in

the Trump trades, there's no way to predict if tomorrow will be

the day Washington significantly expands tariffs. That's why

we're reluctant to call a meaningful dollar correction without

some kind of macro-supporting evidence," ING strategist Chris

Turner said.

The euro was up 0.1% at $1.0373.

The European Union, along with Mexico and Canada, has

condemned Trump's latest round of metal tariffs, with the EU

saying the 27-nation bloc would take "firm and proportionate

countermeasures".

U.S. Treasury yields rose on Wednesday, as a selloff

following Powell's testimony extended, pushing the yields on the

benchmark 10-year note to a one-week high of 4.556%,

which in turn boosted the dollar 0.85% against the Japanese yen

to 153.78.

In Asia, Chinese investors' newfound enthusiasm for

artificial intelligence plays showed no signs of slowing.

Hong Kong's Hang Seng Index jumped 1.83%, lifted by a

rally in shares of Alibaba ( BABA ) after a media report that

it is partnering with Apple to roll out AI features for iPhone

users in China.

In commodities, gold fell 0.3% to $2,889 an ounce,

under pressure from higher bond yields and Powell's sense of

calm about the need for rate cuts, while oil eased 0.7%

to $76.46 per barrel.