World stocks held steady on Tuesday in cautious year-end trading that has seen investors bracing for the incoming Donald Trump administration by scaling back bets on deep U.S. interest rate cuts in 2025, helping the dollar stand tall against most other currencies.

Volumes were light with a holiday for the New Year looming, with the Santa-rally largely failing to materialise as elevated Treasury yields weigh on high equity valuations and boost the greenback.

MSCI's world share index was flat on the day, but set to wrap up 2025 with a 16% annual gain.

This year's rally has been largely a U.S. phenomenon, with the S&P 500 having risen around 24% compared with an 8% gain for MSCI's broadest index of Asia-Pacific shares outside Japan, and just 5% for Europe's STOXX 600.

But the mood latterly has been more cautious on the back of higher U.S. Treasury yields. The yield on the 10-year note reached 4.64% late last week, its highest since May.

This marks something of a change as until late December, the U.S. benchmark yield had spent all of the second half of 2024 below 4.5%.

This upward pressure, said Lee Hardman, senior currency analyst at MUFG, "reflects investor unease over the potential inflationary impact from the incoming Trump administration’s policy agenda."

Investors anticipate President-elect Trump's policies around looser regulation, tax cuts, tariff hikes and tighter immigration to be both pro-growth and inflationary, which in theory would keep U.S. yields high.

"The Fed has already displayed more caution over cutting rates further next year in light of potential policy changes," said Hardman.

But in a sign of end-of-year positioning, the 10-year yield dipped three basis points on Tuesday, after a seven-bp drop on Monday, to trade at 4.52%.

Similarly all three major U.S. indexes closed on Monday with sharp losses mainly due to end-of-year tax positioning, valuations worries and uncertainties about 2025.

CHINA

The only economic indicators of note from Tuesday came from China, where data showed manufacturing activity barely grew in December, although services and construction recovered, suggesting policy stimulus is trickling into some sectors, as the economy braces for new trade risks.

The National Bureau of Statistics purchasing managers' index slowed to 50.1 in December from 50.3 a month prior, barely holding above the 50-mark denoting growth and missing a median forecast of 50.3 in a Reuters poll.

Onshore Chinese blue chips shed 1.6%, while Hong Kong just held in positive territory.

For all of 2024 the CSI 300 rose 14%, its first annual gain following an unprecedented three-year decline. The Hang Seng Index gained 18% after four years of declines.

South Korea's KOSPI was the worst-performing stock market in Asia this year with a decline of 10% as political turmoil took its toll on investor sentiment.

Politics accounted for some underperformance in Europe too, and France's main index fell 2.8% in 2024, as lawmakers continue to haggle over the 2025 budget after an inconclusive election and the collapse of one cabinet under Michel Barnier.

In contrast, large jumps by a handful of Frankfurt-listed names, such as software firm SAP means the German benchmark is up over 18% on the year, despite a political vacuum there ahead of February's election.

In currency markets, 2024 has all been about the dollar, which gained against all other major developed-market currencies, as higher U.S. yields, and outperforming stock markets, drove inflows to the U.S.

The dollar index which measures the U.S. currency against six others, dipped 0.16% on Tuesday, but held close to the two year high touched in November. The index is on course to rise 6.5% this year.

In commodities, oil prices were poised for a second straight year of decline on demand concerns in top consuming countries. For the year, Brent crude futures declined 3.4%, while U.S. West Texas Intermediate crude was down 1%.

Both eked out small gains on Tuesday.

But gold had a banner year, surging over 26% in the year, its strongest annual performance in over a decade on safe-haven demand amid geopolitical tensions around the world as well as monetary policy easing.

(Editing by Shri Navaratnam and Hugh Lawson)