* Global stocks retreat from record highs
* Earnings buoying European equities
* Investors await substantive policy update from Trump
By Helen Reid
LONDON, Feb 17 (Reuters) - Global equity markets were set to end the week on a softer footing on Friday, after setting record highs in the previous two sessions, as investors looked for clarity on U.S. President Donald Trump's policies on tax and trade.
The MSCI All-Country World index was still headed for its fourth straight week of gains after hitting a record high on Thursday, buoyed by positive signs for global economic growth, but Asian and European markets eased as investors cashed in recent gains.
MSCI's index of Asia-Pacific shares outside Japan pulled back 0.2 percent, Tokyo stocks closed down 0.6 percent and the pan-European STOXX 600 index was 0.5 percent lower, although it remained near its highest level in 13 months.
European stocks have been boosted by positive earnings surprises. With more than half of the STOXX 600 companies having reported, 55 percent had beaten forecasts.
"As long as the fundamentals and the earnings story continue to carry through, there's a reason to be invested in these stock markets," said Nandini Ramakrishnan, global market strategist at JPMorgan Asset Management.
Although the dollar was 0.3 percent firmer on the day, it was hovering near a one-week low against a basket of currencies and headed for its sixth week of losses in the last eight, as investors awaited substantive market-friendly news from President Donald Trump on tax reform.
The greenback hit a one-month high on Wednesday after U.S. Federal Reserve Chair Janet Yellen supported a near-term rate hike due to signs of robust economic growth.
Junichi Ishikawa, senior forex strategist at IG Securities in Tokyo said the dollar's recent bounce lacked conviction.
"This shows that the market is still trying to work out the implication of President Trump's policies, of which his approach to trade may not be supportive for the dollar," he said.
Sterling fell half a percent to $1.2427 after data showing retail sales in Britain fell 0.3 percent month-on-month last month, against expectations for a 0.9 percent rise.
Bond yields slipped pretty much across the board. Yields on U.S. Treasuries, which tend to set the bar for global borrowing costs, hovered at 2.43 percent having crept higher during the week on U.S. rate hike speculation, while yields on Europe's benchmark, German Bunds, were down 3 basis points at 0.32 percent.
There has been a noticeable divide this week, with safe-haven Bunds and other core countries like France and Austria have seeing yields rise, while Spain and Italy have seen theirs fall for the first week in five, helped by some soothing noises from the European Central Bank.
The ECB's minutes on Thursday indicated little appetite for curbing stimulus, setting the scene for a divergence in central bank policy between the U.S. and Europe.
"It's too soon to tell what divergent monetary policy will do to equity markets, but higher rates in the U.S. may help financials do better," said Ramakrishnan.
Gold was set for its third week of gains as political uncertainty spurred demand for the safe haven precious metal. It was down 0.2 percent on the day.
Brent crude futures were down 0.1 percent, paring back earlier gains. OPEC sources told Reuters the producers' club could extend its output cut in order to rein in global oversupply.
Copper was set to end the week lower as profit-taking pared back the price of the three-month copper contract, though concerns over supply from Chilean and Indonesian mines remained.
For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
Additional reporting by Marc Jones and Nichola Saminather, Editing by Nigel Stephenson and Alexander Smith