GLOBAL MARKETS-Stocks, dollar surge as US and China agree 90-day tariff relief

Updates with prices after U.S. opening

By Naomi Rovnick

LONDON, May 12 (Reuters) - Global shares rallied, while gold and safe-haven currencies slumped against a resurgent dollar on Monday as the U.S. and China agreed to temporarily slash harsh reciprocal tariffs and cooperate to avoid rupturing the global economy.

Following weekend talks in Geneva, both sides agreed that the U.S. would drop levies on Chinese imports from 145% to 30% during a 90-day negotiation period and China would cut duties from 125% to 10%.

Wall Street stocks were set for significant daily gains, with the S&P 500 index .SPX rising 2.9% in early trades and the tech-focused Nasdaq Composite .IXIC advancing by 4%.

In a joint statement on Monday, Washington and Beijing said they recognised the importance of their bilateral trade relationship to both countries and the global economy, in language that analysts widely said had brightened the market outlook.

An index tracking the dollar against other major currencies =USD rose further from last month's three-year trough with an almost 1.1% gain, while Japan's yen fell 2% to 148.2 per dollar JPY=EBS.

The retreat from haven assets pushed Switzerland's franc CHF=D3 1.6% lower on the day, in a jolt of relief for Swiss exporters and the nation's central bank.

Spot gold prices XAU=, which hit an all-time high of $3,500 last month and often move inversely to the dollar, fell almost 3% to $3,231 an ounce.

"This announcement is not only better than we expected but also better than the market would have expected back in March," Deutsche Bank strategists said in a note to clients about U.S. and China's agreement to suspend tariffs.

The euro, which surged in April as investors questioned the dollar's long-held status as the world's reserve currency, was 1% lower at $1.1138. EUR=EBS

'RELIEF'

Kit Juckes, chief FX strategist at Societe Generale, said the tariff pause was a "substantial relief" for the U.S. and China.

With tariff anxiety having already caused some Chinese exporters to consider their futures, data this weekend showed the nation's factory-gate prices had dropped by the most in six months in April.

Trump's erratic trade policies had also sparked fears over U.S. corporate earnings, with investors having entered this week nervous about an impending update from retail giant Walmart WMT.N after a slew of U.S. multi-nationals pulled their forecasts.

On Monday, however, commodities traders rushed to reassess the recessionary risks of tariff uncertainty, with oil traders pricing Brent crude LCOc1 for delivery next month almost 4% higher at $66.30 a barrel, up from around $57 a week ago.

Aluminium prices jumped 2.9% to $2,488 CMAL3 while London-traded copper CMCU3 futures gained 1% to $9,462 a metric tonne. Europe's regional STOXX 600 .STOXX was last trading 1% higher and Hong Kong's Hang Seng Index ended the day with an almost 3% gain.

FURTHER TO RUN?

While Trump's April 2 tariff announcement initially caused world stocks to drop sharply, MSCI's index of global shares .MIWD00000PUS, which is U.S.-dominated, was trading back at levels last seen in late March.

Some analysts and investors warned, however, that this was not the end of unpredictable trade talks between the White House and Beijing and that any relief may soon be overshadowed by data showing the U.S. economy had slowed.

Sheldon MacDonald, CIO at UK asset manager Marlborough, said that even if the U.S. maintained 30% tariffs on China this was still "negative" for growth, with "no all-clear on recession fears just yet".

Market pricing at the start of the U.S. morning showed extreme optimism that a trade war with China would be avoided, however, with investors cashing out of traditionally low-risk government debt instruments to load up on stocks.

The 10-year U.S. Treasury yield US10YT=RR rose almost 9 basis points (bps) on the day, as the price of the government debt fell, with almost identical moves for benchmark German Bunds DE10YT=RR and UK gilts GB10YT=RR.

But analysts at Citi cautioned Trump supporters may not support a compromise with China and recalled the short-lived trade truce during his first presidency in 2018-2019, when both nations agreed a 90-day tariff halt before tensions resumed .

Goshawk Asset Management fund manager Simon Edelsten said that 30% U.S. tariffs may not be low enough to prevent further rows, with risks Beijing could permit the yuan to weaken in Chinese exporters' favour then stand accused of currency manipulation.

"China may devalue the renminbi to make up for the change of terms of trade, which will reignite another old argument. This is like a mix of Chinese opera and soap opera (with) colourful characters and a plot that takes years to unfold," he said.

(Additional reporting by Wayne Cole in Sydney and Vidya Ranganathan in Singapore; Editing by Amanda Cooper, Kirsten Donovan and Joe Bavier)

((Wayne.Cole@thomsonreuters.com; 612 9171 7144; Reuters Messaging: wayne.cole.thomsonreuters.com@reuters.net))

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