GLOBAL MARKETS-Wall Street joins global stock slide, pares losses with Mexico tariff pause

Updates to early afternoon

By Stephen Culp

NEW YORK, Feb 3 (Reuters) - U.S. stocks joined a worldwide sell-off on Monday as fears that U.S. President Donald Trump's tariffs on Canada, Mexico and China could ignite a global trade war, but their losses eased after tariffs on Mexican imports were paused.

All three major U.S. stock indexes veered sharply lower after the opening bell, but partially recovered after it was announced tariffs on Mexican imports would be paused for a month as Mexico's president, Claudia Sheinbaum, agreed to reinforce its northern border.

Meanwhile, short-dated Treasury yields rose, indicating increased near term inflation risks.

"It's an example of the uncertainty that investors have to deal with, because it's unknown what kind of retribution there could be from other trading partners and how long it is likely to last," said Sam Stovall, chief investment strategist of CFRA Research in New York.

"Trump knows that a trade war could develop into a very deep rat hole," Stovall added. "And as a result, I think he will look to accept pretty much any offer that allows him to save face so I think this turmoil will likely end up being sharp but short."

On the economic front, factory data showed U.S. manufacturing activity expanded for the first time since October 2022, and spending on residential construction projects rebounded.

"(These reports) could be taken negatively because they imply that the Fed has another reason not to be lowering rates anytime soon," Stovall said. "Because if the economy is strengthening, that means that more stimulus would be inflationary."

EUROPE TARIFFS?

The Dow Jones Industrial Average .DJI fell 147.56 points, or 0.34%, to 44,393.56, the S&P 500 .SPX fell 48.48 points, or 0.80%, to 5,992.05 and the Nasdaq Composite .IXIC fell 244.58 points, or 1.25%, to 19,381.21.

European shares fell on fears that Trump's opening tariff salvo could ignite a broader trade war. The U.S. president also warned Europe would be subject to higher tariffs, but offered little clarity on the matter.

MSCI's gauge of stocks across the globe .MIWD00000PUS fell 10.35 points, or 1.19%, to 858.69.

The STOXX 600 .STOXX index fell 0.93%, while Europe's broad FTSEurofirst 300 index .FTEU3 fell 17.47 points, or 0.81%.

Emerging market stocks .MSCIEF fell 19.04 points, or 1.74%, to 1,074.33. MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS closed lower by 2.08%, to 564.64, while Japan's Nikkei .N225 fell 1,052.40 points, or 2.66%, to 38,520.09.

The U.S. Treasury yield curve flattened as short-dated yields rose amid tariff-related inflation fears.

The yield on benchmark U.S. 10-year notes US10YT=RR fell 4.2 basis points to 4.525%, from 4.567% late on Friday.

The 30-year bond US30YT=RR yield fell 5.6 basis points to 4.7561% from 4.812% late on Friday.

The 2-year note US2YT=RR yield, which typically moves in step with interest rate expectations for the Federal Reserve, rose 0.3 basis points to 4.241%, from 4.238% late on Friday.

The dollar reversed its earlier gain against a basket of world currencies.

The dollar index =USD, which measures the greenback against a basket of currencies including the yen and the euro, fell 0.45% to 109.02, with the euro EUR= down 0.81% at $1.0281.

Against the Japanese yen JPY=, the dollar weakened 0.3% to 154.71.

Bitcoin slid to a three-week low in tandem with global equities.

In cryptocurrencies, bitcoin BTC= fell 3.29% to $98,787.61. Ethereum ETH= plunged 17.99% to $2,720.68.

Oil prices pulled back from an earlier surge after tariffs on Mexican imports were paused.

U.S. crude CLc1 fell 0.11% to $72.45 a barrel and Brent LCOc1 fell to $75.49 per barrel, down 0.24% on the day.

Gold touched a record high as tariff jitters prompted safe-haven spending.

Spot gold XAU= rose 0.43% to $2,813.21 an ounce. U.S. gold futures GCc1 rose 0.89% to $2,837.50 an ounce.

(Reporting by Stephen Culp; Additional reporting by Nell Mackenzie, Editing by Amanda Cooper, Angus MacSwan and Alison Williams)

((stephen.culp@thomsonreuters.com; 646-223-6076;))