* Focus on Trump Xi meeting in Florida
* Jobless claims hit lowest in 2 years
* Caution as Fed talks of paring balance sheet
* Czech crown rises 1.5 pct vs euro after cap scrapped
* Nikkei carves out 3-month trough, China PMI disappoints
* Oil steadies, coking coal surges
* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh
By Marc Jones
LONDON, April 6 (Reuters) - Stocks staged a cautious fight back on Thursday before a potentially tense meeting between U.S. President Donald Trump and his Chinese counterpart Xi Jinping, the first between the two world leaders.
Risk appetite stabilised, having been soured by signs the Federal Reserve might start paring asset holdings later this year and that the chances of early U.S. fiscal stimulus may be evaporating.
Wall Street’s main markets barely budged as they reopened , though there was encouragement from jobs market data as weekly jobless claims posted their largest drop in almost two years.
Europe’s big bourses were also starting to turn green, having been down almost 1 percent earlier at one point and facing their worst day in over a month.
“I would say there is a general mood of caution although it would probably be too strong to say it’s risk off,” said Societe Generale strategist Alvin Tan.
“The reality is U.S. equity markets have been going sideways for a while and Treasury yields have been trading towards the low end of the year’s range.”
In the currency markets, the dollar was idling after a brief push, leaving the drama to the Czech crown which saw its biggest rise since 2011 as the central bank scrapped its long-held FX cap versus the euro.
Topping the agenda between Trump and Xi in Florida later will be whether Trump makes good on his threat to use U.S.-China trade ties to pressure Beijing to do more to rein in its nuclear-armed neighbour North Korea.
Nerves were not helped when U.S. Pacific Fleet Commander Admiral Scott Swift said any decision on a pre-emptive attack against North Korea would be up to Trump.
Lingering fears of a possible trade war had also kept Asian markets on edge. Hopes of near-term U.S. fiscal stimulus were also bruised as U.S. House of Representatives Speaker Paul Ryan said there was no consensus on tax reform and that it would take longer to accomplish than healthcare.
Europe’s pan-regional FTSEurofirst was almost back to flat but the overnight falls meant MSCI’s 46-country world index remained 0.2 percent lower and on course for its fourth fall in five sessions.
“Most portfolio managers think equities are the most overbought in 20 years and so anything that creates some kind of concern, well, it is an excuse to take profits,” said Pictet Asset Management’s chief strategist Luca Paolini.
He was referring to minutes of the Fed’s last meeting that showed most of the U.S. central bank’s policymakers thought it should begin trimming its $4.5 trillion balance sheet later this year, earlier than many had expected.
Some Fed members also “viewed equity prices as quite high relative to standard valuation measures,” a rare comment on asset levels that also caught investors off guard.
Wall Street’s steady start came after the Dow posted its largest intra-day downside reversal in 14 months on Wednesday in reaction to the Fed.
Japan’s Nikkei then hit its lowest since early December overnight.
Australia’s index also lost 0.5 percent. Shanghai made marginal gains but a private survey of China’s service sector showed activity expanded at its slowest pace in six months in March.
“We were hit by a bucket of cold water,” said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.
“Signs that the Fed could pare its balance sheet are shocking enough, but the mood was exacerbated as the Fed touched upon stock valuations, which is very rare.”
Treasuries rallied, with yields on 10-year bonds back at 2.34 percent and threatening to clear a chart barrier at 2.30 percent. Comments from ECB head Mario Draghi that the euro zone still needed stimulus also nudged its yields back towards multi-week lows.
Among emerging market currencies, the rand remained vulnerable amid political uncertainty though the Czech central bank’s move to scrap its FX cap saw the crown jump almost 1.5 percent. That was far more modest than expected however.
In commodity markets, oil ticked higher on track for a fourth consecutive daily gain, after recovering from losses triggered by record high U.S. crude inventories.
U.S. crude was up 13 cents at $51.286 a barrel, while Brent made 20 cents to $54.56.
Easily the biggest mover this week has been coking coal, which surged 43 percent on Singapore-listed futures after Cyclone Debbie slammed into top supplier Australia, crippling exports of the steelmaking fuel.
Additional reporting by Wayne Cole in Sydney; Editing by Tom Heneghan