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Equity markets rise, yields drop as rate hike talk softens

FILE PHOTO: Traders work on the floor of the New York Stock Exchange, (NYSE) in New York, U.S., February 9, 2018. REUTERS/Brendan McDermid

By Hilary Russ

NEW YORK (Reuters) - World stock markets advanced on Thursday, with U.S. shares rebounding from a day earlier and bond yields easing off highs, following more cautious talk about the potential for interest rate increases this year.

Oil prices also rose as the U.S. dollar hit session lows in morning trading after having touched a 10-day high, as the euro was boosted by minutes from the European Central Bank's most recent policy meeting.

Comments from St. Louis Fed President James Bullard on Thursday appeared to ease some investor concerns about the Federal Reserve's latest meeting.

Minutes from that meeting, released Wednesday, showed policymakers were more confident about the need to keep raising U.S. interest rates, with most believing inflation would climb.

But Bullard told CNBC on Thursday that central bankers need to be careful not to increase rates too quickly this year because that could slow the economy.

"Bullard made a comment on rates. That's what has given the market a reason to see a little bit of a positive futures," said Robert Pavlik, chief investment strategist at SlateStone Wealth in New York.

Benchmark U.S. Treasury 10-year yields slipped from their four-year high hit in the previous session. The notes last rose 7/32 in price to yield 2.917 percent, from 2.941 percent late on Wednesday.

Bond prices, which usually move inversely to yields, firmed ahead of a U.S. government auction of new seven-year notes, the final sale of $258 billion in debt this week.

The Dow Jones Industrial Average (.DJI) rose 293.47 points, or 1.18 percent, to 25,091.25, the S&P 500 (.SPX) gained 25.27 points, or 0.94 percent, to 2,726.6 and the Nasdaq Composite (.IXIC) added 55.51 points, or 0.77 percent, to 7,273.74.

MSCI's gauge of stock markets across the globe <.MIWD00000PUS> gained 0.36 percent.


European shares, however, seemed to follow Asia lower. A flurry of corporate results failed to lift sentiment after speculation about U.S. interest rates soured risk appetite globally.

The pan-European FTSEurofirst 300 index (.FTEU3) lost 0.10 percent. MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> closed 0.73 percent lower, while Japan's Nikkei (.N225) lost 1.07 percent.

The latest minutes from the ECB showed it retaining its dovish stance and said even changes in communication would be "premature."

In Germany, Europe's biggest economy, data showed business confidence fell more than expected in February.

Though Germany is set for solid growth in the first quarter, diverging monetary policy expectations with the United States sent the "transatlantic spread" between German and U.S. 10-year borrowing costs to 222 bps, the highest in more than a year.

The U.S. dollar slipped against a basket of major currencies as a rally from a three-year low last week ran out of steam, and heightened volatility led investors to favor the Japanese yen, considered a safe haven currency, sending it up.

The dollar index (.DXY) fell 0.16 percent, with the euro (EUR=) up 0.28 percent to $1.2316. The Japanese yen (JPY=) strengthened 0.70 percent versus the greenback at 107.04 per dollar.

Oil extended gains on a surprise draw in U.S. crude inventories and the weaker dollar. [O/R]

U.S. crude (CLcv1) rose 1.56 percent to $62.64 per barrel and Brent (LCOcv1) was last at $66.16, up 1.13 percent on the day.

(Additional reporting by Sujata Rao and Amanda Cooper in London, Sruthi Shankar in Bengaluru,; Saqib Iqbal Ahmed and Karen Brettell in New York; Editing by Bernadette Baum)