By Nell Mackenzie and Tom Westbrook

LONDON/SINGAPORE (Reuters) -The dollar drifted lower and stocks were cautiously positive on Monday as investors awaited an expected flurry of policy announcements during the first hours of Donald Trump's second presidency and eyed a rate hike in Japan at the end of the week.

Trump takes the oath of office at noon Eastern Time (1700 GMT), and promised a "brand new day of American strength" at a rally on Sunday.

He has stoked expectations of a slew of executive orders right away and, in a reminder of his unpredictability, launched a digital token on Friday, which soared above $70 before sliding to around $50 as traders turned uneasy.

Monday is a U.S. holiday, so the first responses to his inauguration in financial markets may be felt in foreign exchange and then during Asian trade on Tuesday.

European stocks edged higher at the open, supported by banks and technology stocks. The pan-European STOXX 600 crept up 0.1%, with the French CAC 40 up 0.2%, the UK FTSE higher by 0.3% and the German DAX flat.

"The fall back in Treasury yields revived equity markets, with European indices doing particularly well," said a note from the Edmond de Rothschild Group.

Shorter-dated euro zone bond yields steadied by 0923 GMT.

"Trump dominates everything in terms of where we go," Societe Generale chief FX strategist Kit Juckes said in his morning note, referencing markets in general and noting that trader positions betting on a rise in the dollar compared with other currencies had reached their highest since 2022.

The dollar is up more than 8% on the euro since September and at $1.0309 is not far from last week's two-year high. But so much is priced in that some analysts feel a more gradual start to U.S. tariff hikes may draw out some sellers.

Trump has threatened tariffs of as much as 10% on global imports and 60% on Chinese goods, plus a 25% import surcharge on Canadian and Mexican products, duties that trade experts say would upend trade flows, raise costs and draw retaliation.

The Canadian dollar touched a five-year low of C$1.4474 per dollar on Monday. The Mexican peso hit a 2-1/2 year low of 20.94 per dollar on Friday. [FRX/]

Bitcoin shot up 4%, hitting a record high of $108,943, while Trump's newly-created cryptocurrency launched on Friday - known as $TRUMP - soared to nearly $12 billion in market value, drawing in billions in trading volume. Melania Trump's crytocurrency launched on Sunday hit a market cap of $1.9 billion.

CHINA FOCUS

China is in focus as the target of the harshest potential trade levies. Investors have cheered better-than-expected Chinese growth data and a Friday phone call between Trump and Chinese President Xi Jinping that left both upbeat.

Hong Kong's Hang Seng closed up 1.8% and China's yuan rallied. [.HK]

"Basically everyone is waiting for these trade negotiations to begin and see what kind of attitude Xi Jinping takes with Trump," Ken Peng, head of Asia investment strategy at Citi Wealth told reporters in Singapore at an outlook briefing.

"That relationship between the two gentlemen has become very important as a leading indicator of policies."

The yuan is seen likely to slowly adjust to any shifts in trade policy and touched a two-week high of 7.3088 to the dollar. [CNY/]

Japan's yen rallied last week as remarks from Bank of Japan policymakers were taken as hints that a rate cut is likely on Friday.

It was last slightly stronger at 156.335 per dollar and rates markets priced about an 80% chance of a 25 basis point rate hike.

In commodities, gold hovered at $2,706 an ounce and Brent crude futures dipped on expectations Trump may ease curbs on Russia's energy sector in return for a truce in Ukraine. [O/R]

(Editing by Stephen Coates and Bernadette Baum)