(Updates market activity, prices)
* Stocks initially fall on China tariffs
* Dollar weakens vs yen, Swiss franc on trade tensions
* Oil skids on trade war fear, bounces on U.S. inventory
By Herbert Lash
NEW YORK, April 4 (Reuters) - The dollar fell and globalstock markets edged higher on Wednesday after China retaliatedin a trade dispute with the United States, but Wall Streetrebounded from a steeply lower opening on the notion a tariffwar has not begun and any impact is too early to foresee.
Oil prices slipped to a two-week low as the speed with whichBeijing responded to U.S. measures, within 11 hours, raised theprospect of a quickly spiraling dispute that could crimp theglobal economy, including the demand for crude.
Gold hit a one-week high, while prices of U.S. Treasurysecurities and German bunds gained on safe-haven buying.
Boeing and Caterpillar led a slide in big U.S. manufacturersand technology companies that bore the brunt of the U.S.-Chinesedispute, while Germany's exporter-heavy DAX index fellmore than its large European market counterparts.
Still, stocks on Wall Street and in Europe pulled back frommore than 1 percent declines, with the FTSE in London closinghigher and the three major U.S. indexes later turned positive.
"The market is overreacting to this trade news," saidMichael Arone, chief investment strategist at State StreetGlobal Advisors in Boston.
"These tariffs won't be implemented for a little while. Itgives both sides time to negotiate, which I think is thestrategy for both the U.S. and China."
Omar Aguilar, chief investment officer at Charles SchwabInvestment Management, said the fact fixed income and currencymarkets did not sell off on the news was potentially a sign thatequity investors over-reacted.
"If they're not concerned that tells you a lot about whatthe implications might be," Aguilar said.
Publication of Washington's list of tariffs starts a periodof public comment and consultation expected to last around twomonths, while the effective date of China's moves depends onwhen the U.S. action takes effect.
China's retaliation came after trading hours for Japan'sNikkei, which added 0.2 percent in thin volume, whileChinese blue chips ended down 0.2 percent.
MSCI's all-country world index of stockperformance in 47 countries traded little changed after tumblingabout 1 percent. The pan-European FTSEurofirst 300 indexof leading regional shares fell 0.43 percent.
The FTSE index in London closed up 0.05 percent,while the DAX closed down 0.37 percent and France's CAC40 index fell 0.2 percent.
The Dow Jones Industrial Average rose 109.13 points,or 0.45 percent, to 24,142.49. The S&P 500 gained 17.72points, or 0.68 percent, to 2,632.17 and the Nasdaq Compositeadded 54.37 points, or 0.78 percent, to 6,995.65.
Shares of Boeing, the single largest U.S. exporter toChina, fell 2.0 percent. Caterpillar slid 0.8 percent.
The likelihood that China and the United States will holdprolonged negotiations on trade leads investors to recognizeequity fundamentals remain strong as the results offirst-quarter corporate earnings will show in coming weeks,Arone said.
"My view is this is more trade poker than it is tradepolicy," he said.
Marc Chandler, chief global currency strategist at BrownBrothers Harriman & Co in New York, said he did not believe atrade war had started yet.
"I think of a trade war as an escalation ladder, and thesemoves are still low rungs on the ladder," he said.
There could be further ramifications of this trade war orroll backs, said Anindya Chatterjee, lead portfolio manager ofemerging markets at Fiera Capital, but "we maintain that anescalation of a tariff war is unlikely."
The dollar index fell 0.07 percent, with the euroup 0.09 percent at $1.228. The Japanese yenweakened 0.13 percent versus the greenback to 106.76 per dollar.
Oil bounced off session lows after U.S. data showed a weeklydecline in crude stocks, instead of the increase analysts hadexpected. U.S. crude settled down 14 cents at $63.37 perbarrel and Brent slid 10 cents to settle at $68.02.
Borrowing costs nudged lower in Europe even as the firstMarch reading on euro zone inflation, important data for marketsas the European Central Bank looks to wind down its massivemonetary stimulus, came in firm at 1.4 percent.
U.S. benchmark 10-year notes fell 2/32 in priceto yield 2.7917 percent. Germany's benchmark 10-year bond yielddipped back below 0.50 percent and toward 2-1/2month lows hit last week.
U.S. gold futures for June delivery settled up $2.90at $1,340.20 an ounce.
(Additional reporting by Wayne Cole in Sydney, Helen Reid andDhara Ranasinghe in LondonEditing by Chizu Nomiyama and Steve Orlofsky)
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