A look at the day ahead in U.S. and global markets from Mike Dolan

Any speculation that U.S. President-elect Donald Trump would adopt a 'softly, softly' approach to his trade and economic policies was jolted overnight as he warned of immediate tariff hikes on Canada, Mexico and China - hitting the currencies of all three.

Trump, who takes office on Jan. 20, said he would impose a 25% tariff on imports from Canada and Mexico on day one until these countries clamp down on drugs, particularly fentanyl, and undocumented migrants crossing the border. The move would appear to violate a free-trade deal with both countries that he negotiated during his first White House term.

Trump also separately outlined "an additional 10% tariff, above any additional tariffs" on imports from China.

It was not entirely clear what this would mean for China as he has previously pledged to end China's most-favoured-nation trading status and slap tariffs on Chinese imports in excess of 60% - much higher than those imposed during his first term.

Currency markets quickly adjusted to try account for the risk of these moves in less than two months' time.

The U.S. dollar surged more than 1% to a four-and-a-half-year high against its Canadian counterpart and more than 2% against the Mexican peso. And the greenback also rose to its highest since July 30 against China's yuan

Together, the peso, Canadian dollar and yuan account for more than 40% of the Federal Reserve's 'broad' dollar trade-weighted basket of currencies.

China's embassy in Washington responded to Trump's comments by saying on neither country would win a trade war.

Other currencies also fell against the greenback but the moves had moderated by early trading in Europe.

The fact that Trump didn't yet mention Europe or Japan as part of the 'day one' plan allowed the euro, which hit a two-year low on Friday, to hold on to Monday's bounce and the yen held up as well.

European Central Bank policymaker Mario Centeno warned that the euro zone must be watchful to avoid inflation undershooting ECB's 2% target amid rising economic risks such as likely new U.S. trade tariffs - that are "not good news for Europe".

TREASURY TRANSITION

Trump's barrage of policy pledges on his social media account late on Monday came just as investors had warmed to the nomination of Wall Street money manager Scott Bessent as Treasury Secretary, hoping for a market-savvy influence on the administration and potentially a voice of restraint.

News of Bessent's appointment came late on Friday and U.S. Treasury bonds rallied sharply in response, with 10-year and 30-year yields falling 10-20 basis points back to pre-election levels.

The retreat in Treasury yields was aided by a fresh swoon in crude oil prices and inflation expectations on reports that Israel look set to approve a U.S. plan for a ceasefire with Lebanon's Hezbollah on Tuesday.

The drop in U.S. crude prices back below $70 per barrel was also helped by news that Trump's transition team is planning an energy package that would approve export permits for new liquefied natural gas projects and increase oil drilling off the U.S. coast and on federal lands.

And the drop in Treasury yields had pulled the dollar back off two-year highs on Monday, at least until the overnight tariff jolt upset the apple cart again today.

Helped by the calm in Treasuries, Wall St stock indexes climbed again on Monday - with the Dow Jones Industrial Average hitting a new record and the small cap Russell 2000 outperforming to hit an all-time high, too.

With another heavy diary of Treasury auctions underway in a holiday-shortened week state-side, the speculation around the new administration's direction is pushing more regular economic monitoring to one side for now.

The Fed is due to release minutes of its most recent policy meeting - when it cut key interest rates again, just two days after the election.

Before that, the Conference Board will also release its latest survey of consumer confidence, another key test of how households reacted to the election result.

Key developments that should provide more direction to U.S. markets later on Tuesday:

* US November consumer confidence, October new home sales, Richmond Federal Reserve November business survey, Dallas Fed November service sector survey, September house prices

* Federal Open Market Committee issues minutes from its latest meeting

* European Central Bank policymaker and Bank of Portugal Governor Mario Centeno and ECB policymaker and Bank of Finland chief Olli Rehn both speak

* US corporate earnings: Dell, Analog Devices, CrowdStrike, HP, Autodesk, Workday, Best Buy, JM Smucker, Abercrombie & Fitch

* US Treasury sells $70 billion of 5-year notes, $48 billion of 2-year floating rate notes

(Editing by Bernadette Baum)