(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 Streetrebounded on Friday as investors who were initially spooked bythe prospect of a global trade war backed off those concerns onthe notion that President Donald Trump was just rattling sabersas a negotiating tactic.
Trump's pledge on Thursday to impose hefty tariffs on steeland aluminum imports sparked concerns about tit-for-tat retaliation that could wound a healthy U.S. economy that ispoised to deliver record corporate earnings. ensuing rout in risk assets knocked the dollar frommulti-week highs and briefly pushed all three major U.S. stockindexes into negative territory for the year as fears of aglobal protectionist wave would be negative for the greenback.
"Absolutely unacceptable" said Canadian Prime MinisterJustin Trudeau about the potential imposition of any U.S. steeland aluminum tariffs. investors decided a full-blown global trade war wasnot in the making and that Trump was only grabbing people'sattention about the U.S. trade deficit, said Phil Orlando, chiefequity strategist at Federated Investors in New York.
"For a real estate guy like that, you pound the podium, yourattle some sabers, you get everybody's attention and then younegotiate back to some reasonable midpoint," Orlando said.
The tariffs are unlikely to significantly hurt corporateAmerica's overall earnings, according to stock marketstrategists, who did not immediately adjust their profitestimates following Trump's announcement.
MSCI's gauge of stock performance in 47 countries .MIWD00000PUS pared losses of 1 percent to close littlechanged.
The S&P 500 and Nasdaq rebounded from losses of 1 percent ormore to close higher. The Dow, however, ended lower and remainedin negative territory for the year so far.
The Dow Jones Industrial Average .DJI fell 70.92 points,or 0.29 percent, to 24,538.06. The S&P 500 .SPX gained 13.58points, or 0.51 percent, to 2,691.25, and the Nasdaq Composite .IXIC added 77.31 points, or 1.08 percent, to 7,257.87.
Earlier in Europe and Asia, where markets were closed whenTrump's tariff proposal was announced on Thursday, major equityindexes fell more than 2 percent. The Nikkei index .N225 tumbled 2.5 percent in Tokyo and the Hang Seng index .HSI fell1.5 percent in Hong Kong.
Asian steelmakers were hit hard, with South Korea's Posco 005490.KS down 3.6 percent and Japan's Nippon Steel 5401.T off 3.8 percent. Toyota Motor 7203.T shares slid 2.4 percentafter the company said tariffs would substantially raiseproduction costs and the price of cars and trucks sold inAmerica. pan-European FTSEurofirst 300 index .FTEU3 of leadingregional shares lost 2.13 percent to close at 1,437.14.
The sell-off in European stocks weighed particularly on theexport-oriented German DAX index .GDAXI , which fell 2.27percent to a six-month low. SA MT.AS , the world's biggest steel maker,fell 3.7 percent while euro zone automakers and parts companies .SXAP fell 2.29 percent.
Investors feared that Trump's move could herald the toughtrade actions he had promised during the electoral campaign as away to incentivize companies to just "buy American, hireAmerican," said John Doyle, vice president of dealing andtrading at Tempus Inc. in Washington.
"The U.S. dollar may face some scrutiny and as a resultstruggle to hold on to recent gains," Doyle said.
The dollar index .DXY fell 0.42 percent, with the euro EUR= up 0.5 percent to $1.2328. The Japanese yen firmed 0.50percent versus the greenback at 105.72 per dollar.
The Mexican peso, which was lower during most of thesession, gained 0.15 percent at 18.80. The Canadian dollar fell0.39 percent versus the greenback at 1.29 per dollar.
U.S. Treasury yields rose as markets priced in the risk of atrade war. The 10-year yield bounced back from a three-week lowas the Bank of Japan's chief hinted at a possible exit from itsultra-easy policies if inflation hits its target in fiscal year2019.
The benchmark 10-year note US10YT=RR fell 18/32 in priceto push its yield up to 2.8679 percent.
Germany's benchmark 10-year Bund yield DE10YT=RR droppedas low as 0.606, its lowest level since late January, beforeinching up to 0.648 percent.
Oil prices rose as Wall Street stocks bounced off sessionlows, but crude benchmarks posted a decline for the week, thefirst weekly decline in three weeks, on fears that U.S. tariffson steel and aluminum could squeeze economic growth, and as U.S.crude inventories climbed.
U.S. crude CLcv1 rose 26 cents to settle at $61.25 perbarrel and Brent LCOcv1 settled up 54 cents at $64.37 perbarrel.
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