GLOBAL MARKETS-Europe set to rally as Trump walks back Greenland threats

Updates prices to Asia afternoon

By Tom Westbrook

SINGAPORE, Jan 22 (Reuters) - The dollar was higher, gold softer and stocks on the rebound on Thursday after U.S. President Donald Trump dropped tariff threats and ruled out seizing Greenland from an ally by force.

Trump's theatrics and consequent tensions have kept markets on edge this week, prompting investors to take the latest developments with a pinch of salt even as relief was palpable.

"I won't do that," the U.S. President said at Davos of an attack to secure Greenland.

"Okay? Now everyone's saying 'oh, good' that's probably the biggest statement I made because people thought I would use force. I don't have to use force, I don't want to use force, I won't use force."

He added on his Truth Social platform that the U.S. and NATO had a framework for a deal and that he would not impose tariffs.

European futures STXEc1 were 1.2% higher in the Asia afternoon and FTSE futures FFIc1 rose 0.75%. On Wall Street the S&P 500 .SPX had notched a 1.16% rise, its largest in two months, and futures ESc1 were 0.3% higher through Asian trade.

A bouncing dollar has pushed the euro EUR= back under $1.17, to $1.1686, and gold XAU= has dropped about $100 an ounce to $4,790 from a record high of $4,887. FRX/GOL/

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rose around 1% and chipmaker gains in Seoul carried the KOSPI .KS11 above 5,000 points for the first time.

"The TACO, as they call it, is certainly real," said Damian Rooney, director of institutional sales at Argonaut, a resources-focused broker in Perth, referring to a Wall Street acronym for "Trump Always Chickens Out".

NATO DEAL

Trump said after meeting with NATO Secretary General Mark Rutte that Western Arctic allies could forge a new deal over Greenland that would satisfy his desire for a missile defence system and access to critical minerals.

There were no details. Rutte later told Fox News the issue of whether Greenland will remain with Denmark did not come up in his conversation with Trump, unsurprising since Rutte is not in charge of either Denmark or Greenland.

And investors were wary of completely unwinding some of the haven bets made this week.

"Our mood here is it's been fabulous fun being a gold bull for the last year and a half," said Argonaut's Rooney, "and with gold you never throw the baby out with the bathwater because (Trump) can't help himself doing or saying some crazy things, whether he's going to carry through or not."

The VIX index .VIX, nicknamed Wall Street's fear gauge, sharply fell back towards baseline levels and U.S. Treasuries, which had been sold through the week, caught a bid.

"The market has largely removed the tail risk of a U.S. confrontation with its NATO partners - not that conflict was ever truly priced into the distribution, but some would have hedged against the risk," said Pepperstone analyst Chris Weston.

AUSSIE LEAPS ON JOBS BEAT

Benchmark 10-year Treasury yields US10YT=RR were flat in Tokyo, after falling four bps in New York. Japanese government bonds extended an erratic rebound from Tuesday's rout, with long-end yields dropping sharply. JP/

The Bank of Japan began a two-day meeting with the policy rate seen on hold but a hawkish tone is expected to flag future hikes.

The yen JPY= was steady at 158.24 per dollar but remained under some pressure on crosses, with the euro not far from a record high on the yen and the Australian dollar scaling an 18-month top of 107.96 yen. FRX/

The Aussie AUD= also hit a 15-month high of $0.6810 on the greenback after data showed a stronger-than-expected rise in Australian hiring and a sharp fall in the jobless rate that had investors scrambling to price in the risk of a February 3 rate hike.

Later on Thursday U.S. core PCE figures are due. Markets have priced around 45 bps of U.S. rate cuts this year.

Earnings are expected from Intel INTC.O, General Electric GE.N, Freeport McMoRan FCX.N and Procter & Gamble PG.N.

(Reporting by Tom WestbrookEditing by Shri Navaratnam)

((tom.westbrook@tr.com; +65 6973 8284;))