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GLOBAL MARKETS-Hope rally turns choppy as hot U.S. inflation looms

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By Tom Westbrook

SYDNEY, Dec 9 (Reuters) - A rally in global stocks, oil and risk-sensitive currencies lost some steam on Thursday amid nagging concern about the Omicron variant and as imminent U.S. inflation data puts the interest rates outlook firmly back in focus.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.6% to a two-week peak, mostly because Chinese shares are riding high on hopes for monetary easing.

Japan's Nikkei, however, fell 0.3% after gaining about 3.5% in the previous two sessions. S&P 500 futures fell 0.1% and European futures were flat. FTSE futures rose 0.2%.

"The UK has moved back to work from home as the norm. Other countries will doubtless follow," said ING economist Rob Carnell.

"At the very least, the F&B industry and leisure will suffer from this at the most critical time of the year for them. So I'd be hesitant before piling back into risk assets at this time of the business year."

After bounding 2.6% in three days the growth-sensitive Australian dollar was flat at $0.7177.

Oil extended gains into a sixth straight session, helped by positive comments from vaccine makers, but the pace of rises has moderated.

Brent crude futures were last up about 0.8% to $76.36 a barrel, U.S. crude rose 0.9% to $73.04.

On Wednesday, BioNTech and Pfizer said a three-shot course of their COVID-19 vaccine was able to neutralise the Omicron variant in a laboratory test, helping lift the S&P 500 within 1% of a new record high.

Market sentiment has also recovered with other pieces of preliminary data suggesting Omicron is less severe than first feared, but offsetting that has been the imposition of tougher restrictions in England to curb Omicron's spread.

China has been a case apart after a cut to banks' reserves ratio this week, followed by fairly benign inflation figures on Thursday, suggesting more easing may be in the works.

The blue chip CSI300 index was last up nearly 2% and has gained almost 4% for the week so far. If sustained, it'd mark the largest weekly leap since February.


Bonds were nursing losses as hope on the virus outlook left a clearer path to higher rates. Traders' focus was turned to the release of inflation data on Friday and a Federal Reserve meeting next week for indications on hike timing.

Fed funds futures are priced for rates to lift-off next May and on Wednesday two-year Treasury yields touched their highest since March 2020 at 0.7140%. They were steady at 0.6817% on Thursday and 10-year yields held at 1.5127% after a 4.6-basis-point jump on Wednesday.

Economists expect annual headline U.S. inflation to have hit 6.8% last month, though previous readings have surprised on the upside.

"An acceleration in the pace of tapering by the Fed is almost being treated as a foregone conclusion," said analysts at ANZ Bank, and beyond it looms an expectation of higher U.S. interest rates in 2022.

"But a strong number could ramp up expectations of a hike in Q2 next year."

Elsewhere in currency trade the U.S. dollar index hovered at 96.041 and the euro dipped marginally to $1.1327.

The yen has edged below its 50-day moving average to 113.76 per dollar. Sterling fell to a one-year low of $1.31615 overnight with the announcement of the tighter COVID-19 rules.

It had recovered slightly to $1.3209 on Thursday. Gold was steady at $1,785 and ounce and bitcoin looks to have found support around $50,000.

(Reporting by Tom Westbrook; Editing by Sam Holmes)