By Lewis Krauskopf
NEW YORK (Reuters) - The euro dropped on Thursday as the European Central Bank signalled caution on inflation and protectionism, while world stock markets edged higher as U.S. President Donald Trump vowed flexibility with his plan to impose steep import tariffs.
While the ECB took a small step towards weaning the euro zone economy off protracted stimulus by dropping its easing bias, ECB President Mario Draghi said monetary policy would remain "reactive" and that underlying inflation was subdued.
The euro was down 0.68 percent to $1.2328, while the dollar index rose 0.44 percent. MSCI's gauge of key world stock markets gained 0.27 percent, while the pan-European FTSEurofirst 300 index rose 1.03 percent.
"They toned down the easing bias but there is still a willingness to ease and the tone of Draghi's comments was still dovish, stressing that there is still not a convincing uptrend in inflation," said Chris Scicluna, head of economic research at Daiwa Capital Markets.
Draghi also addressed the U.S. tariff plans, saying: "If you put tariffs against (those) who are your allies, one wonders who the enemies are."
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Trump offered the prospect of relief from steel and aluminum tariffs to countries that "treat us fairly on trade" as he prepared for a White House meeting on the topic later in the day.
"Anything that would suggest a little bit of a roll back from the tariffs is viewed as positive," said Scott Brown, chief economist at Raymond James in St. Petersburg, Florida.
The Dow Jones Industrial Average rose 10.06 points, or 0.04 percent, to 24,811.42, the S&P 500 gained 3.02 points, or 0.11 percent, to 2,729.82 and the Nasdaq Composite added 21.33 points, or 0.29 percent, to 7,417.98.
Markets have been roiled over the past week by Trump's plans to impose a 25 percent tariff on steel imports and 10 percent on aluminum that have sparked fears of a global trade war.
"It's a news environment where people aren't really sure what is going to happen," said Willie Delwiche, investment strategist at Baird in Milwaukee.
"That's the big thing that's different this year versus last year: you're seeing more of this volatility as people try to sort out some new regimes that are out there," Delwiche said.
The U.S. healthcare sector was rattled as health insurer Cigna Corp said it would buy pharmacy benefits manager Express Scripts Holding Co for about $54 billion. Express Scripts shares jumped 10.9 percent while Cigna dropped 9.7 percent.
Benchmark 10-year notes last rose 8/32 in price to yield 2.8552 percent, from 2.883 percent late on Wednesday.
Oil fell, following a sharp rise in the dollar, steering prices towards a second weekly decline, against a backdrop of rising U.S. crude production and inventories.
U.S. crude fell 0.93 percent to $60.58 per barrel and Brent was at $64.03, down 0.48 percent.
Spot gold dropped 0.3 percent to $1,321.43 an ounce.
(Additional reporting by Sruthi Shankar in Bengaluru, Dhara Ranasinghe, Tommy Wilkes and Marc Jones in London; Editing by Bernadette Baum)