By Marc Jones
LONDON (Reuters) - A sense of calm returned to global markets on Thursday, as traders took a break from worrying about a global trade war and focused instead on the European Central Bank's plans to end its 2.5 trillion euro stimulus program.
European (EU) U.S. and Asian share markets all edged up - the first two for a fourth day - after U.S. President Donald Trump suggested he may spare some key trade partners in his push to introduce protectionist tariffs.
The euro lingered in the red though, as a bigger-than-expected drop in German industrial orders and then a subdued ECB inflation forecast added to the weekend's inconclusive Italian election, reinforcing caution.
The central bank did however drop an explicit promise on its bond buying, which has been running for three years, and there was some pointed criticism from ECB chief Mario Draghi for Trump's plans for more trade tariffs.
"If you put tariffs against (those) who are your allies, one wonders who the enemies are," he said.
Wall Street opened higher just after Draghi spoke and the dollar was up marginally too. Trump is expected to sign a document to establish steel and aluminum tariffs by 3:30 p.m. eastern U.S. time, a source told Reuters.
"This is just the beginning from a U.S. sector perspective as far as protectionism goes," said Michael Luckman, a partner a law firm Gowling WLG.
"Import tariffs could be applied to almost anything that a government believes will harm domestic producers, so this is likely to be the tip of the iceberg."
Highlighting the strength of the global economy, Chinese data showed both exports and imports rose more than 20 percent in the first two months of this year from a year earlier.
In the currency market, the dollar stabilized against other major currencies after its hit from fears about the tariff plan, while the Mexican peso and Canadian dollar recovered from steep losses. [/FRX]
The euro traded down at $1.2377, having risen to $1.2447 on Wednesday, its highest since Feb. 16. The currency has been rising since it hit a seven-week low of $1.2154 when Trump unveiled his tariff plan last week.
Bond markets were also steady with 10-year U.S. Treasury yields stuck at 2.87 percent and Germany's benchmark barely budged at 0.67 percent having hit a five-week low of 0.60 percent on Monday.
"The Governing Council expects the key ECB interest rates to remain at their present levels for an extended period of time, and well past the horizon of the net asset purchases," it said in it post-meeting statement.
TRADE OFF
In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan had risen 1.0 percent, while in Japan the Nikkei gained 0.5 percent.
Hong Kong's Hang Seng led the region with rise of 1.4 percent after China's surprisingly strong trade data.
Wall Street started with a 0.2-0.3 percent rise for the S&P 500 and Dow Jones which had both seen a choppy day on Wednesday.
They had swung higher when White House spokeswoman Sarah Sanders said the impending hefty U.S. tariffs on steel and aluminum imports may exclude Canada, Mexico and some other countries.
That soothed worries about the prospect of more aggressive trade measures after the departure of Trump's top economic adviser Gary Cohn.
Masahiro Ichikawa at Sumitomo Mitsui Asset Management said the issue would hang over markets however. "Investors need to see exactly what steps Trump will take and what retaliatory actions other countries will take in coming days."
EMERGING CONCERNS
Draghi wasn't the only one in Europe to express concerns about Trump's plans. European Financial Affairs Commissioner Pierre Moscovici said Europe was preparing immediate counter-measures in case of a trade skirmish.
"If Donald Trump puts in place the measures this evening, we have a whole arsenal at our disposal with which to respond," Moscovici told BFM TV on Thursday.
The dollar traded at 106.17 yen, little changed in Europe, keeping some distance from its 16-month low of 105.24 touched on Friday.
There was plenty to navigate in emerging markets, too. Turkish assets largely shrugged off Moody's cutting its credit rating deeper into junk-rated territory.
Poland's zloty touched a three-month low against the euro a day after its central bank governor said its first rate increase might come a year later than previously expected.
The Mexican peso hovered cautiously at 18.71 per dollar, bouncing back from Wednesday's low of 18.90 while the Canadian dollar changed hands at C$1.2890 off an eight-month low of C$1.3002 hit this week.
Bitcoin steadied after slumping more than 7 percent on Wednesday after U.S. and Japanese regulators tried to tighten their grip on crypto-currencies.
Japan's financial regulator punished seven crypto-currency exchanges, suspending business at two of them, to bolster consumer protection after the $530 million theft of digital money from Tokyo-based Coincheck.
In commodities, oil prices inched back after falling more than 2 percent the previous day on record U.S. crude production and rising inventories.
U.S. West Texas Intermediate (WTI) crude futures were just under $61 a barrel, down 0.3 percent, while benchmark Brent was 0.5 percent lower at $64 a barrel.
Key industrial metals were weak. Copper and Nickel hit one-month lows on lingering fears of a trade war.