GLOBAL MARKETS-Trump's Venezuela missives knock high-flying stocks

Updates with early European trading

By Naomi Rovnick and Rocky Swift

TOKYO/LONDON, Jan 7 (Reuters) - Global stocks retreated from all-time peaks and oil extended its slide on Wednesday as U.S. President Donald Trump's plan to grab Venezuelan crude reserves and his latest missive on Greenland forced a New Year rally to take a breather.

Brent crude oil futures dropped by as much as 1%, heading for a second day of losses after Trump followed up the U.S. capture of Venezuelan President Nicolas Maduro over the weekend by saying that the Latin American nation would be "turning over" up to 50 million barrels of oil to be sold at market prices.

MSCI's broad gauge of world stocks .MIWD00000PUS fell for a second day too, retreating from its latest record high as investors also booked profits on high-flying Japanese shares, with Tokyo's Nikkei average .N225 falling 1% after hitting an all-time peak on Tuesday.

Uncertainty about what Trump might do next and how China may react to the risks of its interests being disrupted was on investors' minds but hard to translate into most asset prices, said Lombard Odier Investment Managers multi-asset portfolio manager Florian Ielpo.

“This new geopolitical environment creates uncertainty that’s not priced into markets yet,” he said.

Investors were balancing the latest tensions with their ongoing faith in a so-called Goldilocks economic outlook where recession and inflation risks were both deemed to be low, he added.

“We seem to be still expecting Goldilocks, but if we see an acceleration of geopolitical risk there is further repricing to come.”

COMMODITIES MARKETS STAY FOCUSED ON GEOPOLITICS

Wall Street stock futures indicated U.S. equities would edge slightly lower in early cash trades ESc1, NQc1.

The dollar =USD was flat against a basket of world currencies and the euro EUR= was steady at $1.1691. Commodities markets were fully focused on the implications of Trump’s latest moves.

Trump said on Tuesday that the Caracas government had agreed a deal to export up to $2 billion worth of Venezuelan crude to the United States as he appeared to be working with senior officials in the South American nation’s government.

U.S. crude oil CLc1 fell 1% to $56.57 a barrel and Brent LCOc1 was down 0.6% at $60.33 after falling more sharply in Asian trading. O/R

Investors banked some profits in gold XAU, which dropped 0.8% to $4,461 per ounce, after it hit record levels late last month. Copper held on to its all-time peak reached on Tuesday and nickel stuck at 19-month highs due to Indonesian supply concerns. MET/L

EUROPE BUCKS THE CAUTIOUS TREND

Sentiment was stronger in European markets as the latest euro zone inflation report showed price increases had slowed to a year-on-year rate of 2% in December, hitting the European Central Bank’s target.

German 10-year Bund yields dropped by 5 basis points (bps) to just below 2.8%, and Germany’s DAX share index traded 0.6% higher.

The pan-regional Stoxx 600 .STOXX share index was flat, in part due to banking stocks .SX7p as prospects for rate hikes that tend to increase lenders’ profits receded.

In Britain, the FTSE 100 .FTSE slipped 0.5%, caught up in the global wave of profit taking after the share index hit 10,000 points for the first time in a New Year rally.

Asian stocks were weighed down by China announcing a ban on exports to Japan of dual-use technologies that could be used for defence, a move analysts viewed as a warning to Japanese Prime Minister Sanae Takaichi about support for Taiwan.

Hong Kong’s Hang Seng Index .HSI. closed almost 1% lower and mainland Chinese stocks .CSI000300 slipped 0.3%.

Markets were also trading cautiously ahead of Friday’s U.S. jobs report, which will likely influence expectations for the interest rate path, with traders currently pricing in two more Federal Reserve cuts this year.

Benchmark U.S. Treasuries had barely moved, with ten-year yields holding at around 4.15% UAS10YT=RR and two-year yields that follow monetary policy expectations also flat at about 3.47% US2YT=RR.

(Reporting by Rocky Swift in Tokyo and Naomi Rovnick in London; Editing by Shri Navaratnam, Kirsten Donovan)

((rocky.swift@thomsonreuters.com;))