TOKYO- World stocks eased off record highs on Wednesday and U.S. and German bond yields slipped, as euphoria over a U.S.-China trade deal was tempered by U.S. Treasury Secretary Steven Mnuchin saying tariffs on Chinese goods would remain in place for now.

The 18-month trade spat should enter a quieter phase as U.S. President Donald Trump and Chinese Vice Premier Liu He sign an initial agreement that would boost Chinese purchases of U.S. manufactured and agricultural goods, energy and services. Dubbed the Phase 1 deal, it may soothe markets which have been on edge as the conflict between the world's two largest economies hit hundreds of billions of dollars in goods, uprooted supply chains and slowed economic growth.

But share prices have pulled back from recent highs, with Wall Street closing weaker on Tuesday, MSCI's index of Asian shares outside Japan retreating from 19-month peaks and Japan's benchmark Nikkei likewise falling 0.5%, off a four-week high.

MSCI's all-country equity index edged into the red after two days of gains while all three New York indexes are set to open weaker, futures suggested 

The pan-European STOXX 600 index slipped 0.1%.

The retreat was triggered by Mnuchin's comments that U.S. tariffs on Chinese goods would stay until the completion of a second phase of a U.S.-China trade agreement. Their eventual removal hinged on Beijing's compliance with the Phase 1 accord, Bloomberg reported, citing sources. 

The news did not entirely surprise markets, however, and many attributed the pullback to profit-taking off the recent rally than to any turn in underlying sentiment.

"The Phase 1 deal had pretty much been priced in so (Mnuchin's) comments took some steam out of the market last night and that's feeding through into today," said Justin Onuekwusi, a portfolio manager at Legal & General Investment Management.

The jittery mood gave a mild boost to safe-haven assets such as gold, with the precious metal ticking up 0.3% after two days of losses. The Japanese yen and high-grade bonds also firmed slightly, though the yen was just a whisker off 7-1/2-month lows of.

U.S. Treasury yields ticked down, with the benchmark 10-year note yield falling more than 2 basis points to 1.7930% , hurt also by Tuesday's data showing consumer prices undershooting expectations in December, which could allow interest rates to stay unchanged this year.

German 10-year yields fell 3.5 bps, extending their fall from two-week highs after data showed the German economy grew by 0.6% in 2019, the weakest expansion rate since 2013 and a marked cooling from the previous year.

Markets are also weighing the potential impact of the U.S. government nearing publication of a rule that would expand its powers to block shipments to China's Huawei, as it seeks to squeeze the blacklisted firm. 

"I think the Trump administration will continue to put pressure on China in this way or some other, even after signing a Phase 1 deal," Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance said.

Markets may also focus more on company earnings -- Refinitiv analysis suggests S&P 500 companies' earnings-per-share fell 0.6% in the last 2019 quarter-- the second straight quarterly decline.

But expectations from the financial sector are higher, especially after JPMorgan posted record profits and Citi beat estimates on Tuesday. Goldman Sachs, Bank of America, BlackRock are among those reporting results later on Wednesday.

"The market will see trade escalation taken off the table but it will start to focus on earnings. We saw huge multiple expansions in 2019 and that won't happen again until we see earnings coming through," Onuekwusi said.

On currency markets, the trade-reliant Australian dollar slipped 0.3% against the greenback while the euro was broadly flat.

The offshore yuan CNH= weakened slightly, a day after rising to its strongest level in six months of 6.865.

The British pound, down almost 2% this month, slipped further as below-forecast inflation data prompted money markets to ramp up expectations of an interest rate cut as soon as this month.

(Additional reporting by Tomo Uetake in Tokyo; Editing by Alison Williams) ((sujata.rao@thomsonreuters.com))

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