GLOBAL MARKETS-European stocks lead as Trump tariffs knock Asia, Fed rate cut bets recede

By Naomi Rovnick and Rae Wee

LONDON, SINGAPORE Sept 26 (Reuters) - European stocks rose on Friday, shrugging off U.S. President Donald Trump's fresh round of punishing tariffs on the pharmaceutical sector that knocked bourses in Asia, while Wall Street assets traded cautiously ahead of U.S. inflation data.

The regional Stoxx 600 share index .STOXX was up 0.5% in early dealings, led by industrial and financial stocks, while Germany's DAX added 0.5% .GDAXI and London's FTSE 100 rose 0.4%.

Trump announced the U.S. would impose 100% duties on imported branded drugs, 25% tariffs on heavy-duty trucks and 50% tariffs on kitchen cabinets.

Shares in major European drugmakers like Roche ROG.S and Novo Nordisk NOVOb.CO initially fell around 2% before recovering those losses and edging higher.

MORE TARIFFS PRICED IN

Trump also said he would start charging a 50% tariff on bathroom vanities and a 30% tariff on upholstered furniture, with all the new duties to take effect from October 1.

Trump's announcements on new levies on Truth Social did not include details about whether these would apply on top of national tariffs, or whether there would be exemptions for those, such as the European Union and Japan, that have already secured trade deals with the U.S.

"The market was expecting more tariffs, and the sea of green you see in Europe this morning shows this was priced," Premier Miton fund manager Daniel Hughes said.

He added that better-than-expected U.S. economic data had injected some caution into U.S. assets by lessening expectations of future Fed rate cuts, which inflation data due later on Friday could further reduce.

U.S. stock index futures ESc1, NQc1 were up 0.1-0.2% in Europe, suggesting a modest rise at the open later.

FED CUT BETS RECEDE

A slew of data on Thursday suggested the U.S. economy remains in rude health.

"Robust economic data - such as stronger durable goods orders and an upward revision to GDP ... has shifted expectations around future rate cuts and driven the dollar higher," said Shier Lee Lim, Convera's lead FX and macro strategist for APAC.

Traders are pricing in just about 39 basis points worth of rate cuts by December this year, compared to more than 40 bps earlier this week. 0#USDIRPR

"There was some bullish optimism built into markets, because everybody started thinking we're going to get somewhere between four and six rate cuts, and now I think we're probably looking at four at most, and maybe even that seems a bit generous at this point of time into the end of 2026," said Tony Sycamore, a market analyst at IG.

While most Fed policymakers continue to strike a cautious tone on the pace of future easing, the central bank's newest policymaker, Stephen Miran, on Thursday pressed for sharp U.S. interest-rate cuts to prevent labour market collapse.

DOLLAR GIVES UP SOME GAINS

The benchmark 10-year Treasury yield US10YT=RR which skirted 4% last week, was last trading at 4.1872%.

The dollar gave up some gains on Friday, though remained set for a weekly gain of about 0.7% against a basket of currencies =USD, buoyed by the receding Fed cut bets.

The yen JPY=EBS languished near the 150-per-dollar level and was headed for a weekly fall of more than 1%, while the euro EUR=EBS last bought $1.1673.

In commodities, oil prices were on track for their biggest weekly gain in three months. Brent crude futures LCOc1 were flat on the day at $69.46 a barrel, while U.S. crude CLc1 rose 0.3% to $65.15 per barrel. O/R

Spot gold XAU= fell 0.1% to $3,745.53 an ounce. GOL/