(Adds close of U.S. markets)
* Dollar falls from multi-week highs
* Treasury yields rise on possibility of trade war
* Oil prices rise on the day but decline for the week
By Herbert Lash
NEW YORK, March 2 (Reuters) - Stocks on Wall Street rebounded on Friday as investors who were initially spooked by the prospect of a global trade war backed off those concerns on the notion that President Donald Trump was just rattling sabers as a negotiating tactic.
Trump’s pledge on Thursday to impose hefty tariffs on steel and aluminum imports sparked concerns about tit-for-tat retaliation that could wound a healthy U.S. economy that is poised to deliver record corporate earnings.
An ensuing rout in risk assets knocked the dollar from multi-week highs and briefly pushed all three major U.S. stock indexes into negative territory for the year as fears of a global protectionist wave would be negative for the greenback.
“Absolutely unacceptable” said Canadian Prime Minister Justin Trudeau about the potential imposition of any U.S. steel and aluminum tariffs.
However, investors decided a full-blown global trade war was not in the making and that Trump was only grabbing people’s attention about the U.S. trade deficit, said Phil Orlando, chief equity strategist at Federated Investors in New York.
“For a real estate guy like that, you pound the podium, you rattle some sabers, you get everybody’s attention and then you negotiate back to some reasonable midpoint,” Orlando said.
The tariffs are unlikely to significantly hurt corporate America’s overall earnings, according to stock market strategists, who did not immediately adjust their profit estimates following Trump’s announcement.
MSCI’s gauge of stock performance in 47 countries pared losses of 1 percent to close little changed.
The S&P 500 and Nasdaq rebounded from losses of 1 percent or more to close higher. The Dow, however, ended lower and remained in negative territory for the year so far.
The Dow Jones Industrial Average fell 70.92 points, or 0.29 percent, to 24,538.06. The S&P 500 gained 13.58 points, or 0.51 percent, to 2,691.25, and the Nasdaq Composite added 77.31 points, or 1.08 percent, to 7,257.87.
Earlier in Europe and Asia, where markets were closed when Trump’s tariff proposal was announced on Thursday, major equity indexes fell more than 2 percent. The Nikkei index tumbled 2.5 percent in Tokyo and the Hang Seng index fell 1.5 percent in Hong Kong.
Asian steelmakers were hit hard, with South Korea’s Posco down 3.6 percent and Japan’s Nippon Steel off 3.8 percent. Toyota Motor shares slid 2.4 percent after the company said tariffs would substantially raise production costs and the price of cars and trucks sold in America.
The pan-European FTSEurofirst 300 index of leading regional shares lost 2.13 percent to close at 1,437.14.
The sell-off in European stocks weighed particularly on the export-oriented German DAX index, which fell 2.27 percent to a six-month low.
ArcelorMittal SA, the world’s biggest steel maker, fell 3.7 percent while euro zone automakers and parts companies fell 2.29 percent.
Investors feared that Trump’s move could herald the tough trade actions he had promised during the electoral campaign as a way to incentivize companies to just “buy American, hire American,” said John Doyle, vice president of dealing and trading at Tempus Inc. in Washington.
“The U.S. dollar may face some scrutiny and as a result struggle to hold on to recent gains,” Doyle said.
The dollar index fell 0.42 percent, with the euro up 0.5 percent to $1.2328. The Japanese yen firmed 0.50 percent versus the greenback at 105.72 per dollar.
The Mexican peso, which was lower during most of the session, gained 0.15 percent at 18.80. The Canadian dollar fell 0.39 percent versus the greenback at 1.29 per dollar.
U.S. Treasury yields rose as markets priced in the risk of a trade war. The 10-year yield bounced back from a three-week low as the Bank of Japan’s chief hinted at a possible exit from its ultra-easy policies if inflation hits its target in fiscal year 2019.
The benchmark 10-year note fell 18/32 in price to push its yield up to 2.8679 percent.
Germany’s benchmark 10-year Bund yield dropped as low as 0.606, its lowest level since late January, before inching up to 0.648 percent.
Oil prices rose as Wall Street stocks bounced off session lows, but crude benchmarks posted a decline for the week, the first weekly decline in three weeks, on fears that U.S. tariffs on steel and aluminum could squeeze economic growth, and as U.S. crude inventories climbed.
U.S. crude rose 26 cents to settle at $61.25 per barrel and Brent settled up 54 cents at $64.37 per barrel.
Reporting by Herbert Lash, additional reporting by Richard Leong in New York Editing by Diane Craft and Leslie Adler