* World shares drop after 3-day gains, retail frenzy slows
* Oil at 1-year high on OPEC+ production cut Benchmark bond
yields
rising, curves steepening
* Volatility index falls to regular levels
* Stealth China policy tightening in focus
By Marc Jones
LONDON, Feb 4 (Reuters) - World stock markets were pushing
for a fourth day of gains on Thursday as a near one-year high in
oil prices, a revitalised dollar and rising bond yields
refocused attention on inflation and normalising economies.
With the WallStreetBets/Reddit retail trading tumult having
eased this week, markets were back in their comfort zone of
corporate earnings, economic data and central bank meetings.
Oil was approaching $60 a barrel after OPEC and its allies
extended had production cuts O/R . London, Frankfurt and Paris
share indexes edged 0.4%-0.5% higher .EU , and dollar's renewed
swagger shoved the euro under $1.20. EUR= /FRX
Britain's sterling GBP= also saw its biggest fall in three
weeks as traders waited to see whether the Bank of England would
formally endorse negative interest rates as a potential future
option. At the end of last year, expectations were building that
their introduction could be imminent. But Britain's speedy
COVID-19 vaccine rollout since then has eased those bets.
"The BoE will maintain a quite cautious tone," said Silvia
Dall'Angelo, a senior economist at fund management firm
Federated Hermes adding it was likely that the bank would talk
about negative rates. "But at this stage there is very little
appetite to use this measure."
Hopes that the COVID pandemic can be brought to heel by
extensive vaccination programmes, combined with expectations of
unswerving global economic stimulus, has begun to see bond
market focus returning to rising debt and possible inflation.
Germany's 30-year government bond yield DE30YT=RR on
Thursday was almost back in positive territory for the first
time since September. The gap between two- and 10-year U.S.
Treasury yields at more than a 100 basis points is now the
widest in almost three years.
New U.S. President Joe Biden had told House Democrats on
Wednesday that he was more concerned that too little would be
provided rather than too much when it came to economic relief.
GOOGLE IT
U.S. stock futures ESc1 were up in Europe. Wall Street had
seen the NYSE Fang+ index of leading tech giants .NYFANG hit
an intraday record high on Wednesday, thanks to a 7.4% gain in
Google parent Alphabet (NASDAQ:GOOGL) GOOG.O following its strong earnings.
But markets had been softer in Asia overnight. MSCI's
ex-Japan Asian-Pacific index fell 0.6% .MIAPJ0000PUS , led by
1.3% and 0.4% drops in South Korea .KOPSI and China .SSEC .
Japan's Nikkei .N225 lost 1% as it ended a three-day winning
streak.
Rising Chinese short-term interest rates CN7DRP=CFXS
SHIBOR= kept risk appetite low, though analysts also noted
position adjustments before the Lunar New Year starting next
week are likely to play a role too.
Higher interest rates have raised worries Chinese
policymakers may be starting to shift to a tighter stance to
rein in share prices and property markets.
"There's persistent speculation that the Chinese authorities
may want to tighten its policy," said Wang Shenshen, senior
strategist at Mizuho Securities.
Markets on the whole have calmed in the past few days with
the Cboe Volatility index .VIX slipping to its lowest levels
in over a week.
As the retail trading frenzy seen last week faded, stock
prices of GameStop GME.N and other social media favourites
have steadied, although crytocurrency Ethereum has been on tear
ahead of the introduction of futures contracts next week.
Among the mainstream currencies, the dollar hit a
near-three-month high vs the Japanese yen of 105.19 JPY= .
The euro lost 0.4% to $1.1989 EUR= , having already hit a
two-month low overnight.
The euro failed to capitalise on improved sentiment in Italy
after former European Central Bank chief Mario Draghi accepted
the task of trying to form a new government in the country.
Gold XAU= fell 0.8% to $1,819.0 per ounce.
Oil markets continued to advance after the OPEC+ alliance of
major producers stuck to a reduced output policy and U.S. crude
stockpiles fell to their lowest since March last year.
U.S. crude CLc1 rose 0.79% to $56.13 per barrel and Brent
LCOc1 gained 0.74% to $58.89. Both stood near their highest
levels in about a year.
"The market is buying into this reflation story to some
extent," said Federated Hermes' Dall'Angelo.
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Global assets http://tmsnrt.rs/2jvdmXl
Global currencies vs. dollar http://tmsnrt.rs/2egbfVh
Emerging markets http://tmsnrt.rs/2ihRugV
MSCI All Country World Index Market Cap http://tmsnrt.rs/2EmTD6j
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