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Dollar whipsawed as Trump threatens tariffs

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Relief rally for yuan and China stocks

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S&P 500 rose 19.4% in Trump's first year; futures steady

(Writes through with fresh quotes; updates prices to Asia

afternoon)

By Suzanne McGee, Saeed Azhar and Tom Westbrook

NEW YORK/SINGAPORE, Jan 21 (Reuters) - Financial markets

swayed and wobbled at the beginning of Donald Trump's second

U.S. presidency after he made a softer start on China than many

had anticipated, but then signaled punitive tariffs on North

American neighbours within hours.

A wave of relief that swept across markets - as his speech

and slew of executive orders imposed no new trade levies - was

stopped in its tracks when Trump told reporters in the White

House's Oval Office that he was thinking about 25% tariffs on

Mexico and Canada from Feb. 1.

The dollar, which had slipped, reversed course to hit

five-year highs on its Canadian counterpart.

Hong Kong shares rose, battery stocks fell and the trading

day was a neat reminder of both the rollercoaster that markets

rode through Trump's first term and how, this time, investors

feel more sanguine about the risks.

"Prepared remarks and what's off the cuff - both of them

will move markets," said Tai Hui, chief market strategist in

Asia at J.P. Morgan Asset Management, at a briefing in

Singapore.

"Rather than basing all our investment decisions on what is

announced...we just have to maybe take a step back and just

absorb," he said.

"What was said on the campaign trail...and what is now being

studied and researched and implemented there's still going to be

a significant gap."

Trump had vowed to immediately impose steep tariffs of 10%

to 20% on global imports into the U.S. and 60% on goods from

China, but a memo he issued after taking office only directed

agencies to research and investigate the U.S. trade deficits.

The dollar hit a five-year high of 1.452 Canadian dollars

before steadying around C$1.44. It rose but stayed

below last month's highs on the Mexican peso.

Treasuries rallied and S&P 500 futures rose 0.2%.

European futures slipped 0.4%. Chinese stocks and the

yuan tentatively rose.

"Tariffs are necessarily an overhang," said Vis Nayar, chief

investment officer at Eastspring Investments in Singapore.

"I think we should expect volatility. But there is hope that

there is some pragmatism. We have to assume that he's not going

to do anything that just brings up U.S. inflation without paying

attention to that."

PRO-BUSINESS, BUT AT A COST

Trump enters office with an ambitious agenda spanning trade,

immigration, tax cuts and deregulation which has the potential

to boost U.S. corporate profits but which could also reignite

inflation and put upward pressure on interest rates.

In his inaugural speech, Trump pledged to bolster the U.S.

oil, gas and power industries and to crack down on immigration.

He pardoned supporters who attacked the Capitol four years

ago. He also withdrew from the Paris climate pact and declared

an emergency to clear the way for more oil and gas production.

Battery stocks in South Korea fell after he revoked an order

that had sought to ensure half of new cars sold in the U.S.

after 2030 were electric vehicles. A U.S. holiday on Monday

means that U.S. equities will react on Tuesday.

"Most of what he has been talking about will help spur

growth and corporate profits," said Jack Ablin, chief investment

officer at Cresset Capital.

"But many will come at a cost. We will need to see a lot of

earnings growth to make up for even a minor increase in interest

rates that could follow higher tariffs" and other proposals, he

said.

Cryptocurrency markets, which have soared in the run-up to

Trump taking office, came under pressure as the lack of any

instant crypto-friendly announcements stirred some

disappointment. Bitcoin, which came close to $110,000 on

Monday was trading around the $100,000 mark and a Trump-branded

memecoin that hit almost $75 on the weekend fell to $36.

During the first year of Trump's first administration, the

S&P 500 rose 19.4%, following a 5% rally in his first 100 days.

For the entirety of his first term, the S&P 500 rose nearly

68%, but saw bouts of volatility, stemming in part from a trade

war Trump fought with China.

"The big question on investors' minds right now is going to

be 'how' -- how will he cut costs and lower inflation and lower

interest rates," said Josh Strange, president of Good Life

Financial Advisors of NoVA, a financial advisory firm.