* Investors worry Trump may take protectionist steps with Xi
* European stocks touch 16-month high, then ease
* Generally upbeat manufacturing data supports dollar
* Oil prices under pressure on Libyan output recovery (Adds U.S. market open, byline, dateline; previous LONDON)
By Herbert Lash
NEW YORK, April 3 (Reuters) - Global equity markets eased on Monday as investors awaited the first meeting later this week between U.S. President Donald Trump and Chinese President Xi Jinping, as the dollar gained amid a positive U.S. backdrop of rising interest rates.
European shares touched a 16-month high before paring gains as they tracked Asian shares higher in the wake of upbeat manufacturing data out of Europe and China.
Shares on Wall Street fell in morning trading as investors assessed how Trump’s protectionist stance on trade will play out during meetings with Xi slated for Thursday and Friday.
Trump held out the possibility, in an interview published on Sunday by the Financial Times, of using trade as a lever to secure Chinese cooperation against North Korea.
“The market will be anxious and will be eager to glean whatever they get from those talks,” said Andre Bakhos, managing director at Janlyn Capital in Bernardsville, New Jersey.
“The market was a little taken aback by Trump’s comments recently about the meeting,” he said.
The pan-European FTSEurofirst 300 index lost 0.49 percent, shedding earlier gains, and MSCI’s gauge of stocks across the globe shed 0.39 percent.
German manufacturing growth hit almost a six-year high in March, Markit’s Purchasing Managers’ Index (PMI) showed. Manufacturing activity in France and Italy also rose, adding to signs of a pickup in the global economy.
On Wall Street, the Dow Jones Industrial Average fell 79.12 points, or 0.38 percent, to 20,584.1. The S&P 500 lost 11.29 points, or 0.48 percent, to 2,351.43 and the Nasdaq Composite dropped 27.46 points, or 0.46 percent, to 5,884.28.
The dollar rose amid investor expectations U.S. rates will continue to rise this year, even as Federal Reserve officials have said the Fed is in no rush to tighten monetary policy.
“U.S. fundamentals remain solid, may improve further still, if the president can make some quick progress on tax reform,” said Shaun Osborne, chief FX strategist at Scotiabank in Toronto.
U.S. construction spending and manufacturing data were positive overall, affirming the economy’s steady improvement and helping lift the dollar. Construction spending grew 0.8 percent to $1.19 trillion, the highest since April 2006.
The dollar index rose 0.31 percent, with the euro unchanged at $1.0649.
The Japanese yen strengthened 0.34 percent versus the greenback at 111.01 per dollar, while sterling was last trading at $1.247, down 0.60 percent on the day.
Oil prices were under pressure as a rebound in Libyan oil output over the weekend offset upbeat economic data from Asia that suggested robust energy demand from the region.
Benchmark Brent futures eased by 8 cents to $53.45 a barrel. U.S. West Texas Intermediate crude futures were down 10 cents at $50.50 a barrel.
Manufacturing data showed factories across much of Asia posted another month of solid growth in March.
The Bank of Japan’s “tankan” survey showed business sentiment improved, albeit slightly less than expected.
Benchmark 10-year notes last rose 16/32 in price to yield 2.339 percent.
Additional reporting by Yashaswini Swamynathan; Editing by Bernadette Baum