* European stock markets open flat
* Some caution ahead of Fed's Yellen testimony on policy
* China inflation picks up
* Dollar pressured after Trump's national security aide
* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh
By Dhara Ranasinghe
LONDON, Feb 14 Stocks flatlined and the dollar
dipped on Tuesday as caution set in before testimony from
Federal Reserve chief Janet Yellen that may offer clues to the
timing of the next U.S. interest rate rise.
Adding to pressure on the dollar was the resignation of
President Donald Trump's national security adviser Michael
Flynn, who quit over revelations he had discussed U.S. sanctions
against Moscow with the Russian ambassador to the United States
before Trump took office, and misled Vice President Mike Pence
about the conversations.
The prospect of Trump-led economic stimulus in the United
States has underpinned the dollar and stocks in recent days,
powering U.S. equity markets to record highs on Monday and
helping Asian shares to eke out 19-month peaks on Tuesday.
But the buoyant mood in global markets was tempered somewhat
as attention turned to semi-annual testimony by Yellen on
Tuesday and Wednesday that could highlight the likelihood of two
or more U.S. interest rate hikes this year.
Dallas Fed President Robert Kaplan on Monday argued the Fed
should move soon to avoid falling behind the curve, especially
as fiscal policy could drive faster growth and inflation.
"If Yellen wants March to be a live meeting as other Fed
officials have suggested it is, she will have to adopt a more
hawkish tone beyond the usual reference to data dependency,"
said ING senior rates strategist Martin van Vliet.
"Currently we calculate a market implied probability of
around 17 percent for a March rate hike."
The STOXX 600, Europe's leading index of top 600
shares, dipped 0.2 percent to 369.43 points, pulling back from
more than one-year highs hit on Monday.
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markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
In Asia, MSCI's broadest index of Asia-Pacific shares
outside Japan edged up 0.2 percent, trying for
its fifth straight session of gains.
Japanese shares ran into trouble after Toshiba Corp
delayed an anxiously awaited earnings release. Toshiba said it
would take a 712.5 billion yen ($6.28 billion) writedown on its
U.S. nuclear business, wiping out its shareholder equity and
dragging the company to a full-year loss.
There was also some eye-catching data from China, where
producer price inflation picked up more than expected in January
to near six-year highs, while consumer price inflation neared a
U.S. stock market futures pointed to a slightly weaker open
on Wall Street. U.S. stock indexes hit historic peaks on
Monday, with the benchmark S&P 500's market value topping $20
trillion as investors bet tax cuts promised by Trump would boost
DOLLAR ON BACK FOOT
The dollar fell after Flynn's resignation and as investors
looked ahead to Yellen's testimony.
The dollar index dipped 0.2 percent against a basket
of currencies to 100.74 but was still near its strongest since
Jan. 20, while the euro was 0.3 percent firmer after three
sessions of losses to stand at $1.0626.
Against the yen, the dollar weakened 0.2 percent on the day
to stand at 113.46 yen, off Monday's high of 114.17 but
well above a 10-week low of 111.59 yen touched a week ago.
In commodity markets, metals were on a tear thanks to supply
disruptions and strong Chinese demand.
Copper hit its highest since May 2015 after
shipments from the world's two biggest copper mines were
Iron ore climbed to its since August 2014 amid reports China
plans to cut steel capacity by at least half in 28 cities across
five regions during the winter heating season.
Oil recouped some ground on OPEC-led efforts to cut output,
though rising production elsewhere kept prices to a narrow range
that has contained them so far this year.
U.S. West Texas crude added 22 cents to $53.15 a
barrel, having shed 1.7 percent overnight. Brent futures
rose 33 cents to $55.90 a barrel.
(Additional reporting by Wayne Cole in SYDNEY; Editing by Mark