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GLOBAL MARKETS-Commodities rally, stocks steady, yields off highs

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Danilo Masoni and Anshuman Daga
·3 min read
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(Adds details, updates prices)

* World stocks steady near 2-week low

* Crude oil, metal prices rise on growth outlook

* Expectations of faster growth spur inflation fears

* Eyes on Fed's Powell testimony at 1500 GMT

* Global asset performance:http://tmsnrt.rs/2yaDPgn

By Danilo Masoni and Anshuman Daga

MILAN/SINGAPORE, Feb 23 (Reuters) - Optimism about theeconomic outlook pushed commodity prices to new highs onTuesday, helping stocks steady as expectations of a dovishtestimony by Federal Reserve Chairman Jerome Powell calmed downbond yields.

The MSCI world equity benchmark was flatnear two week lows by 0919 GMT, helped by gains incommodity-heavy equity indexes in Asia and a rally in Europeantravel stocks on the prospect of easing social restrictions.

British Prime Minister Boris Johnson set out a phased planon Monday to end a COVID-19 lockdown in the world's sixthlargest economy.

World stocks had been weighed down in recent sessions by arapid surge in global bond yields which fuelled expectationsthat central banks could eventually turn less accommodative in abid to tame inflation. Tech stocks were among the hardest hit.

But the sell-off in the bond market eased after EuropeanCentral Bank chief Christine Lagarde said on Monday the centralbank was "closely monitoring" rising borrowing costs.

Investors now expect Fed's Powell to be equally reassuringwhen he testifies before Congress at 1500 GMT.

"If there were already any expectations that Powell couldtry to calm down rates, then (Lagarde's remarks) have justfurther cemented them," said Giuseppe Sersale, strategist andfund manager at Anthilia in Milan.

Tech stocks and rate-sensitive sectors like utilities inEurope however fell, offsetting stronger travel and commoditystocks and pushing down the regional benchmarkby 0.6%.In Asia, the rally in commodities lifted Australia's S&P/ASX200 0.9%, while tech-laden South Korea's Kospilost 0.3%. Japanese markets were shut for a public holiday.

Nasdaq futures were down 0.6% at three-week lowsafter high-growth stocks such as Apple, Microsoftand Tesla dragged the index down 2.5% onMonday, while S&P 500 futures inched 0.1% lower.

Bond yields have risen sharply this month as prospects ofmore U.S. fiscal stimulus boosted hopes for a faster economicrecovery globally. However, that is also fuelling inflationworries, prompting investors to sell growth stocks that haverallied in recent months.

"Real U.S. interest rates are now in positive territory,which has created some concern around the consequences forequities markets," Cesar Perez Ruiz, chief investment officer atPictet Wealth Management said in a report.

U.S. 10-year Treasury yields edged up to 1.374%but remained below the one-year high of 1.394% hit on Monday.

Germany's 10-year Bund yields also rose to-0.309% but were below the 8-month high of -0.278% hit in theprevious session.

Commodity prices strengthened again.

Oil prices jumped by more than $1, underpinned by optimismover COVID-19 vaccine rollouts and lower output as U.S. supplieswere slow to return after a deep freeze in Texas shut in crudeproduction last week.

Brent crude was last up 0.9% at $66.18 a barrelafter earlier hitting a fresh 13-month high of $66.79, whileU.S. crude rose 1.2% to $62.45 a barrel.

"Oil has been caught up in the broader commodities movehigher, with a weaker USD proving constructive for the complex,"ING strategists led by Warren Patterson said in a note.

"Meanwhile, there is also a growing view that the oil marketis looking increasingly tight over the remainder of the year".

Copper prices meanwhile hit a 9-1/2-year high as tightsupply and solid demand from top consumer China boostedsentiment.

In currency markets, the dollar briefly dropped to itslowest since Jan. 13 ahead of Powell's testimony, whilecommodity-linked currencies hovered near multi-year highs.

The dollar index was up 0.1% at 90.143, with the euroflat at $1.2151.

(Reporting by Danilo Masoni in Milan and Anshuman Daga inSingapore; Editing by Ana Nicolaci da Costa)