SINGAPORE/LONDON (Reuters) -Tumbling stock markets and rallying Treasuries steadied somewhat Europe on Tuesday, as a modicum of calm returned to markets after the previous day's dramatic moves when the Nasdaq saw its biggest one-day fall in over two years.

Europe's broad Stoxx 600 index was flat in early trading, Asia Pacific-ex Japan shares, which had been down around 1.75% earlier in the day were last just 0.5% lower, and U.S. share futures were up around 0.3%.

This was in stark contrast to Monday, when investors' concerns about a potential economic slowdown were exacerbated after President Donald Trump in a Fox News interview talked about a "period of transition" and declined to rule out a recession.

The S&P 500 fell 2.7% on Monday, its biggest one-day drop this year, while the Nasdaq slid 4.0%, its biggest single-day percentage drop since September 2022.

Prashant Newnaha, a senior Asia-Pacific rates strategist at TD Securities, said most traders had previously believed Trump would blink if stocks tanked.

"Markets have now gotten the memo that the administration is intent on ripping the band-aid off. Tariffs and recession may be the medicine to create disinflation and getting that 10-year yield lower. For now it's a controlled demolition."

Meanwhile, a rush to U.S. Treasuries saw the yield on benchmark U.S. 10-year notes fall 10 basis points on Monday its largest daily move in almost a month. It was another 2 basis points lower on Tuesday at 4.12%.

The two-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, fell to a five-month low and was last down 1.5 bps at 3.88%. [US/]

Traders are now pricing in 85 bps of easing from the Fed this year, compared to 75 bps on Monday, LSEG data showed, betting weak U.S. growth will compel the Federal Reserve to start easing again.     

"If we were to see the economy move into recession, they are going to cut a lot more," said Idanna Appio, portfolio manager, First Eagle Investment Management.

Wednesday's U.S. consumer price index could scuttle those expectations if it confirms that inflation is still a problem.     

Investors are mindful of last month's hotter-than-expected data that saw inflation rise 0.5% in January, its biggest monthly gain since August 2023. February's CPI is expected to have climbed 0.3%, according to a Reuters poll.

"Near-term, inflation is sticky and tariffs are likely to lead to inflation, so are the shifts in immigration policies," said Appio.

In currency markets, safe havens remained in demand, but moves were less dramatic than the day before. The Japanese yen reached its strongest in five months against the dollar before giving up gains to trade flat at 147.2. Still, the yen is up 7% against the dollar in 2025. [FRX/]

The euro also strengthened 0.6% to $1.10898.

In commodities, oil prices were steady as investors grappled with worries that U.S. tariffs would slow economies around the world and hurt energy demand while OPEC+ ramps up its supply. [O/R]

Gold prices rose to $2,908 per ounce, within touching distance of the record high hit last month. Gold is up 10% so far in 2025 after climbing 27% last year. [GOL/]