TOKYO - Asian stocks joined the global rally and the US dollar held on to most of its gains on Tuesday as investors heaved a sigh of relief after a temporary halt in the trade war between the US and China eased worries of a global recession.

Japan's Nikkei soared 2 percent, touching its highest level since February 25.

That left the MSCI's broadest index of Asia-Pacific shares outside Japan at a six-month peak. The S&P 500 rose over 3 percent while the Nasdaq soared 4.3 percent after the US and China agreed to slash tariffs for at least 90 days.

"The real win here was the shift in tone from both the US and China. Words like 'mutual respect' and 'dignity' mark a sharp departure from the recent confrontational rhetoric, and that’s what markets are cheering," said Charu Chanana, chief investment strategist at Saxo in Singapore.

The US said it will cut tariffs imposed on Chinese imports to 30 percent from 145 percent, while China said it would cut duties on US imports to 10 percent from 125 percent, providing relief to the markets, although concerns linger that tariffs could hurt the global economy.

The US dollar surged against the yen, euro and Swiss franc immediately after the agreement was announced but on Tuesday morning was slightly weaker, holding on to most of its gains.

Some analysts highlighted the uncertainty caused by the tariffs that remain in place.

"A de-escalation was inevitable and I think it’s clear there won’t be much durable that comes out of these talks," said Christopher Hodge, chief US economist at Natixis.

"When all is said and done, tariffs will still be dramatically higher and will weigh on US growth."

Ratings agency Fitch estimated that the US effective tariff rate is now 13.1 percent, a notable decline from 22.8 percent prior to the agreement but still at levels last seen in 1941 and much higher than the 2.3 percent it was at the end of 2024.

US inflation test

Investor focus will now switch to details of the agreement and what happens after 90 days but before that the spotlight will be on US inflation data later on Tuesday.

"Should we be treated to another set of soft CPI figures, it could allow traders to refocus on Fed policy and the potential for cuts, and take some steam out of the dollar's rebound," said Matt Simpson, senior market analyst at City Index.

The shift in US-China trade relations has led traders to pare back bets of Federal Reserve rate cuts, inferring that policymakers are likely to be under less pressure to ease interest rates to boost growth.

Traders are now pricing in 57 basis points of cuts this year, down from over 100 basis points during the height of tariff-induced anxiety in mid-April.

US Treasury yields rose to a one-month high on Monday and were hovering near that level in early trading on Tuesday. The two-year yield was at 3.9873 percent, while the benchmark 10-year yield was last at 4.4512 percent.

In cryptocurrencies, bitcoin eased 0.5 percent to $102,146 on Tuesday but remained above the key $100,000 level it breached last week.

Oil prices eased a bit on Tuesday after hitting a two-week high in the previous session on trade deal optimism, while gold prices were steady after dropping 2 percent on Monday as investors exited some of the safe havens.