Dollar slides on Korean news; Asia leads world stocks higher

By Rodrigo Campos

NEW YORK (Reuters) - The U.S. dollar dropped to a two-week low on Tuesday as traders bet on riskier currencies on news North and South Korea would hold their first summit in more than a decade and after the South said the North was willing to discuss denuclearization with the United States.

North and South Korea, still technically at war since 1953 but with tensions having eased since the Winter Olympics hosted by the South last month, will hold their first summit in more than a decade next month, South Korea said on Tuesday. It added that the North would suspend nuclear tests while proposed talks with the United States on denuclearization were underway.

The impact of the news on stock markets was clouded by concern over a possible trade war, triggered by tariffs on imports of steel and aluminum proposed last week by U.S. President Donald Trump.

But Republican lawmakers stepped up calls for Trump to pull back from those tariffs as key trading partner Mexico rejected a bid by Washington to drive a wedge between it and Canada in talks to renegotiate the North American Free Trade Agreement.

The U.S. dollar, seen as a safe haven against risk in recent months, fell further after news of the North and South Korea talks as investors bought the Australian and New Zealand dollars and some emerging market currencies.

"It's too early to wholeheartedly buy these currencies because of the chances of escalating trade tension between U.S. and its trading partners," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.

The dollar index , which tracks the greenback against a basket of other major currencies, fell 0.51 percent, with the euro up 0.54 percent to $1.2402. The dollar index touched its lowest since Feb. 20.

The Japanese yen weakened 0.01 percent versus the greenback to 106.24 per dollar, while sterling was at $1.3885, up 0.27 percent on the day.

Traders await clues on monetary policy direction after European Central Bank and Bank of Japan policy-makers meet on Thursday and Friday.

"The strength of the euro is starting to put pressure on the euro zone economy. This is putting pressure on the ECB," said Jack McIntyre, portfolio manager at Brandywine Global in Philadelphia.

Stocks edged higher in Europe and rose slightly in the United States, while a global gauge of major equity markets was boosted largely by gains in Asia after stocks were battered Monday on concerns over a global trade war. Those worries eased during U.S. market hours on Monday, so Asian equities were catching up.

On Wall Street, trade war worries ebbed, lifting the S&P 500 for a third straight session, though it was unclear what Trump's final decision on tariffs would be.

"The market is basically grasping for straws around what the (tariff) policy is going to be. Based on the action we saw today it's hoping it doesn't turn into a trade war," said Jonathan Mackay, investment strategist at Schroders Investment Management in New York, adding that the news out of the Korean peninsula "helps around the margin."

The Dow Jones Industrial Average rose 29.2 points, or 0.12 percent, to 24,903.96, the S&P 500 gained 7.86 points, or 0.29 percent, to 2,728.8 and the Nasdaq Composite added 39.92 points, or 0.54 percent, to 7,370.62.

The pan-European FTSEurofirst 300 index rose 0.10 percent and MSCI's gauge of stocks across the globe gained 0.69 percent.

Emerging market stocks <.MSCIEF> rose 1.82 percent. MSCI's broadest index of Asia-Pacific shares outside Japan closed 1.9 percent higher, while Japan's Nikkei <.N225> rose 1.79 percent.

U.S. Treasury yields were little changed in choppy trading as optimism grew that Trump may back down from his proposed tariffs, even though he said he would not.

His suggestion that Canada and Mexico could be exempted if a new North American Free Trade Agreement (NAFTA) was reached drove market participants to see his tariffs talk as leverage in NAFTA talks.

"It does seem as though Trump has laid out the fact that he's using these tariffs as a negotiating tactic," said Gennadiy Goldberg, an interest rate strategist at TD Securities in New York.

Benchmark 10-year U.S. Treasury notes last fell 1/32 in price to yield 2.8808 percent, from 2.879 percent late on Monday.

The 30-year bond last rose 7/32 in price to yield 3.139 percent, from 3.151 percent late on Monday.

U.S. crude fell 0.02 percent to $62.56 per barrel and Brent was last at $65.75, up 0.32 percent.

Gold rallied on the back of the weaker dollar. Spot gold added 1.1 percent to $1,334.63 an ounce. U.S. gold futures gained 1.21 percent to $1,335.90 an ounce.

Copper rose 1.19 percent to $6,992.50 a tonne.

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Global assets in 2018 http://tmsnrt.rs/2jvdmXl

Global currencies vs. dollar http://tmsnrt.rs/2egbfVh

Global bonds dashboard (DO NOT USE UNTIL UPDATE FOUND) http://tmsnrt.rs/2fPTds0

Emerging markets in 2018 http://tmsnrt.rs/2ihRugV

MSCI All Country World Index Market Cap http://tmsnrt.rs/2EmTD6j

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(Additional reporting by Sinead Carew, Richard Leong and Karen Brettell in New York; Editing by Bernadette Baum and James Dalgleish)