By Wayne Cole
SYDNEY (Reuters) - The dollar struggled in Asia on Tuesday as U.S. President Donald Trump's focus on protectionism ahead of fiscal stimulus fuelled suspicions his administration might be content to gain a competitive advantage through a weaker currency.
The talk of trade wars came even as more data pointed to a welcome revival in activity worldwide. A survey of Japanese manufacturing out Tuesday showed the fastest expansion in almost three years as export orders surged.
Instead the uncertainty emanating from Washington kept Asian stocks subdued while aiding safe-haven Treasuries and the yen.
MSCI's broadest index of Asia-Pacific shares outside Japan edged up 0.4 percent, while Shangahi was flat and the Nikkei slipped 0.4 percent.
Spread betters pointed to a hesitant opening for European bourses while E-mini futures for the S&P 500 were a fraction softer.
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Sentiment took an early knock when U.S. Treasury Secretary nominee Steven Mnuchin told senators that he would work to combat currency manipulation but would not give a clear answer on whether he views China as manipulating its yuan.
In written answers to a Senate Finance Committee, Mnuchin also reportedly said an excessively strong dollar could be negative in the short term.
The dollar duly skidded as far as 112.52, breaking last week's trough and the lowest since late November, before steadying at 112.86. Its 1.7 percent loss on Monday was the largest since July 29.
Against a basket of currencies, the dollar index was down 0.1 percent at 100.080, while the euro hopped up to $1.0756. Both were levels last seen in early December.
Sterling briefly hit a six-week peak at $1.2546 on speculation that Britain's Supreme Court would rule on Tuesday that the government needs parliamentary approval to trigger formal Brexit talks.
SCEPTICISM GROWS
While Trump promised huge cuts in taxes and regulations on Monday, he also formally withdrew from the Trans-Pacific Partnership (TPP) trade deal and talked of border tariffs.
"It's interesting that markets did not respond positively to a reaffirmation of lower taxes and looser regulation, reinforcing the impression that all the good news is discounted for now," wrote analysts at ANZ in a note.
"As week one in office gets underway, there is a growing sense of scepticism, not helped by the tone of Friday's inaugural address and subsequent spat with the media."
Doubts about exactly how much fiscal stimulus might be forthcoming helped Treasuries rally. Yields on 10-year notes eased to 2.39 percent, having enjoyed the steepest single-day drop since Jan. 5 on Monday.
Two-year yields were at 1.16 percent, narrowing the dollar's premium over the euro to 183 basis points from a recent top of 207 basis points.
Wall Street lost just a little of its recent gains. The Dow Jones fell 0.14 percent, while the S&P 500 .SPX lost 0.27 percent and the Nasdaq 0.04 percent.
Shares in Qualcomm Inc dived almost 13 percent after it was sued by Apple on Friday.
The drop in the dollar boosted industrial metals including copper and iron ore, while gold was near two-month high at $1,216.65 an ounce.
Oil prices lagged as signs of a strong recovery in U.S. drilling largely overshadowed news that OPEC and non-OPEC producers were on track to meet output reduction goals.
U.S. crude futures added 23 cents to $52.98, while Brent crude eased 28 cents to $55.51 a barrel.
(Reporting by Wayne Cole; Editing by Simon Cameron-Moore)