Dollar lower, stocks flat as caution creeps in ahead of Trump inauguration

By Vikram Subhedar

LONDON (Reuters) - The dollar edged lower while stocks were little changed on Friday as investors held back ahead of Donald Trump's inauguration as U.S. president and a speech that could shed some light on his economic policies.

Mounting questions about how Trump's administration would carry out an ambitious agenda of lower taxes, more government spending and looser regulations have seen a pause in the post-election rally in risky assets.

Concerns over the details of Trump's inauguration speech offset better-than-expected economic data from China and comments from Federal Reserve Chair Janet Yellen in which she sounded less hawkish than the previous day.

Tens of thousands of law enforcement officers and miles of barriers were in place in Washington D.C., as officials braced for hundreds of thousands of people planning to celebrate or protest the inauguration of Trump.

The dollar lost momentum with the dollar index, which tracks the greenback against six major currencies, falling 0.1 percent.

"All eyes will be on the content and style of Trump's inauguration speech," Morgan Stanley strategists led by Hans Redeker wrote in a note.

"The more 'Presidential' this speech comes across, the better the outcome for markets," the strategists wrote.

European stocks opened weaker before recouping some losses to trade flat. Trading was choppy with mining shares, the biggest beneficiaries of the reflation rally spurred by Trump's election win, the biggest drag on the indexes.

Europe's benchmark index was poised for its worst week since before Trump's election win last November.

Caution prevailed across asset classes, with borrowing costs in the euro area pulling further away from one-month highs on Friday while appetite for safe-haven debt underpinned Bunds.

Ten-year bond yields in Germany, the euro zone's biggest economy and its benchmark issuer, fell 1 basis point to 0.29 percent.

"He's (Trump) likely to talk about job creation and unifying the U.S. and we may have to wait a bit longer for details on economic measures," said Natixis fixed income strategist Cyril Regnat.

Fund flows in the run-up to Friday's inauguration indicate investors moving into less risky assets and locking in some profits in banking stocks and high-yield debt.

Precious metals funds saw their first inflows in 10 weeks, according to data from fund tracker EPFR and Bank of America-Merrill Lynch while money was pulled from funds focused on financials stocks and high-yield bonds.

Gold prices held steady and were headed for a fourth straight week of gains. U.S. gold futures rose 0.1 percent to $1,202.7 per ounce.

Also in commodity markets, oil prices rose, supported by expectations of tighter supply and on reports of record Chinese demand. [O/R]

China's economy grew a faster-than-expected 6.8 percent in the fourth quarter, boosted by higher government spending and record bank lending, giving it a tailwind heading into what is expected to be a turbulent year.

Brent crude, the international benchmark, rose 29 cents to $54.45. U.S. West Texas Intermediate (WTI) crude oil futures were trading up 31 cents at $51.68 per barrel.

(Additional reporting by Dhara Ranasinghe; Editing by Hugh Lawson)