Updates after early European trading

By Rae Wee and Alun John

SINGAPORE/LONDON, Feb 25 (Reuters) - The dollar steadied on Tuesday, having fallen to its lowest in more than two months against a basket of major currencies a day earlier, buoyed by safe-haven flows after U.S. President Donald Trump said tariffs on Mexico and Canada would proceed as planned.

Trump on Monday said that tariffs on Canadian and Mexican imports were "on time and on schedule" despite efforts by the countries to beef up border security and halt the flow of fentanyl into the U.S. ahead of a March 4 deadline.

Many had hoped the top two U.S. trading partners could persuade Trump's administration to further delay tariffs that would apply to over $918 billion worth of U.S. imports from the two countries, from autos to energy.

But Trump's comments spurred a rush to safety assets like gold and U.S. Treasuries, and helped stabilise the dollar which has fallen some 3% from its January peak, after weaker-than-expected U.S. economic data that stoked worries over its growth outlook.

That left the euro EUR=EBS at $1.04672, a touch off Monday's one-month peak hit in the aftermath of the German election, and the pound at $1.2618, just off Monday's two-month high. GBP=D3

The Japanese yen, JPY=EBS which has been boosted by market bets on further rate hikes from the Bank of Japan, was steady at 149.5 per dollar, after reaching 148.5 per dollar on Monday, its strongest since mid December.

The combination of those moves left the dollar index, which tracks the unit against six peers, at 106.6, up from Monday's two-month low of 106.1. =USD

"Since the last week or two, the incoming economic news from the U.S. is really playing to this narrative that the U.S. is kind of losing its economic exceptionalism. But whenever we see a reasonable risk-off tone in equity markets ... the dollar gets its sort of traditional safe-haven support," said Ray Attrill, head of FX strategy at National Australia Bank.

"Heading towards these key tariff deadlines, it's hard to see a significant recovery in risk sentiment ... and that's going to keep defensive support for the U.S. dollar in place," Attrill added.

The Canadian dollar was at C$1.4257 per dollar, CAD=D3 its weakest in over a week, but a far cry from the C$1.4792 per dollar to which it had tumbled on February 3, in the aftermath of Trump's initial announcement of tariffs on Canada.

Options markets also hiked expectations of the volatility they expect for the Canadian dollar to their most in two weeks, CADSWO= but again levels were well short of those at the start of the month.

In Europe, eyes remained on German politics, where the conservatives' Friedrich Merz was looking to quickly form a government after winning a national election on Sunday, but faces tricky coalition talks and the prospect of an obstructive parliament after far-right and far-left parties surged.

That has left investor hopes of greater borrowing and spending, that would have a positive effect on the euro, up in the air.

(Reporting by Rae Wee in Singapore and Alun John in London; Editing by Himani Sarkar and Bernadette Baum)

((Rae.Wee@thomsonreuters.com;))