By Manya Saini and Niket Nishant

April 10 (Reuters) - Heightened uncertainty fueled by the on-and-off U.S. tariffs will likely take center stage as the nation's regional banks gear up to report first-quarter results next week, with investors tracking signs of stress in asset quality.

President Donald Trump's decision to pause many of his new reciprocal tariffs for 90 days provided a reprieve to regional bank stocks on Wednesday, but analysts warned that the broader conflict remains unresolved.

"The trade war isn't exactly over, and the pause didn't return the world to the time before Trump touched off the global instability," said Art Hogan, chief market strategist at B. Riley Wealth.

The turmoil sparked by the flip-flop starkly contrasts with the optimism at the start of the year when the banking industry rallied on hopes of strong loan growth and a rebound in deal activity under the new business-friendly administration.

"While near-term overhang from tariffs may have eased for now, regional banks likely face a challenging year," analysts at J.P. Morgan said, observing that loan demand may remain subdued as borrowers keep to the sidelines seeking clarity.

Investors should also pay close attention to the escalating tensions with China, they said. While most of the steep tariffs were temporarily eased, the U.S. raised duties on imports from China to 125% from 104%, with Trump accusing Beijing of showing a "lack of respect" for the world's markets.

A dispute between the two biggest economies of the world could weigh on growth. Any economic downturn is particularly risky for regional banks, which rely heavily on lending to local businesses and consumers.

Such banks also lack the scale of larger peers, and their smaller or non-existent trading operations leave them without an opportunity to cash in on market turmoil during times of volatility.

Since the new levies were first announced, the KBW Regional Banking index .KRX has dropped 7.5% through Wednesday's close.

REAL RISK

Fifth Third FITB.O, Citizens Financial CFG.N and Regions Financial RF.N are among the banks expected to report results next week. Forecasts and executive commentary will likely draw more scrutiny than the quarterly numbers themselves.

Markets have swung wildly in recent days as Trump first unveiled steep tariffs only to temper them a week later, raising investor interest in how banks plan to navigate the turbulence.

Analysts have warned of a spike in provisions for credit losses, or the capital that banks set aside to cover potential defaults by borrowers.

Such provisions - closely tied to the health of the economy - are expected to rise by nearly 28%, on average, across the 10 largest U.S. regional banks in the first quarter, according to estimates compiled by LSEG.

For the full year, they are projected to climb almost 14%, reversing earlier expectations of reserve releases.

The uncertainty also casts a cloud on the sector's nascent recovery from a crisis of confidence last year when exposure to commercial real estate $(CRE.UK)$ raised concerns about its health.

CRE had been expected to stabilize this year as the U.S. Federal Reserve cut interest rates, but fresh economic uncertainty is challenging that view. If property values decline or refinancing conditions tighten, regional lenders could come under renewed stress.

"CRE has been a source of stress for the group for some time now, and while falling rates were expected to ease pressure, macro uncertainty puts those assumptions at risk," analysts at Raymond James wrote in a recent earnings preview.

"We enjoyed the short-lived 'everything is awesome' sentiment that favored a bull case following the election," the brokerage added.

(Reporting by Manya Saini in Dubai and Niket Nishant in Bengaluru; Editing by Sriraj Kalluvila)

((Niket.Nishant@thomsonreuters.com))