Bond selloff cools, Wall Street rebounds

By Richard Leong

NEW YORK (Reuters) – The global bond market rout slowed on Thursday as long-term borrowing costs retreated from their highest levels in more than five months, helping to stabilize European stocks and kindle a mild recovery on Wall Street.

The absence of a deal between Greece and its lenders, however, put pressure on the euro and regional stocks.

Investors’ rush out of stocks and bonds earlier this week sent major European indexes to their lowest in two months and major U.S. and Japanese gauges to the weakest in a month.

U.S. Federal Reserve Chair Janet Yellen’s warning about high equity valuations on Wednesday added pressure to U.S. stocks ahead of Friday’s U.S. jobs report, which may support expectations of a possible Fed rate increase later this year.

Oil prices scaled back from 2015 highs on the perception of ample supply despite data that showed the first weekly drop in U.S. crude inventories since January.

“That drastic, draconian move in bonds and violent updraft in oil are settling a little bit and that’s helping us focus on stocks,” said Art Hogan, chief market strategist at Wunderlich Securities in New York.

A retreat in European bond yields from their session peaks caused the euro to decline from a 10-week high against the dollar.

A bounce in the dollar and elevated bond yields touched off a second day of selling in gold.

Bond markets were at the center of this week’s rout, prompted by heavy supply and less pessimism about Europe, with German Bunds on track for their biggest weekly spike in yields in over a decade.

Italian and Spanish yields hit 2 percent for the first time this year, French yields topped 1 percent and U.S. Treasuries, the benchmark for borrowing costs globally, briefly broke 2.3 percent. [EUR/GVD] [US/]

Global yields receded from their Thursday peaks on bargain-hunting, led by Japanese investors who had been out of the market due to the three-day Golden Week holiday, analysts and traders said.

The Dow Jones industrial average closed up 83.38 points, or 0.47 percent, at 17,925.36, the S&P 500 ended 7.9 points, or 0.38 percent, higher at 2,088.05 and the Nasdaq Composite finished up 25.90 points, or 0.53 percent, to 4,945.54. [.N]

FTSEurofirst index of top European shares ended little changed at 1,547.04, erasing an earlier 1.8 percent loss. [.EU]

Tokyo’s Nikkei ended down 1.2 percent. [.T]

The MSCI world equity index, which tracks shares in 45 nations, fell 0.3 percent to 433.36.

In the currency market, the euro hit a 10-week high against the dollar at $1.13920 earlier before easing down to $1.12715, down 0.7 percent from Wednesday’s close.

The dollar index firmed at 94.632, up 0.6 percent.

Sterling edged up 0.1 percent versus the greenback at $1.5266 amid an expected tight parliamentary election. [GBP/]

Brent crude settled down $2.23, or 3.3 percent, at $65.54 a barrel. U.S. crude settled $1.99, or 3.27 percent, lower at $58.94 per barrel. [O/R]

Spot gold prices fell $8.79 or 0.74 percent, to $1,182.51 an ounce. [GOL/]

(Additional reporting Noel Radewich in San Francisco, Tanya Agrawal in Bangalore,; Marc Jones, Marius Zaharia and John Geddie in London; Editing by Mark Heinrich, Nick Zieminski and Meredith Mazzilli)

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