GLOBAL MARKETS-Oil on the boil, with stocks and bonds on the backfoot

* World shares drop after 3-day gains, retail frenzy slows
* Oil at 1-year high on OPEC+ output 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) - Stock markets fought for a fourth
day of gains as a near one-year oil price high, a revitalised
dollar and rising bond yields turned attention to inflation and
normalising economies.
With an easing of the WallStreetBets/Reddit retail trading
tumult, markets were back in their comfort zone of corporate
earnings, economic data and central bank meetings.
Oil was approaching $60 a barrel on Thursday after OPEC and
its allies extended production cuts O/R . London, Frankfurt and
Paris share indexes edged 0.1%-0.5% higher, helped by more
German stimulus .EU and as the dollar's renewed swagger pushed
the euro back under $1.20. EUR= /FRX
Britain's pound GBP= initially saw is biggest fall in
three weeks as traders waited to see whether the Bank of England
would endorse negative interest rates as a future option. When
it did, with the caveat it would not be for at least for six
months, sterling jumped and turned positive. At the end of last year, expectations were building that
their introduction could be imminent, but Britain's speedy
COVID-19 vaccine rollout has since eased those bets.
"The market expected the BoE to talk about negative rates,
but it's probably bit a relief rally (in sterling) as they
didn't come down more strongly in favour of them," said Saxo
Bank's head of FX strategy John Hardy.
"The (BoE) committee was clear that it did not wish to send
any signal that it intended to set a negative bank rate at some
point in the future," its chief Andrew Bailey said. Hopes that the COVID-19 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 and market gauges of future euro zone
inflation were at their highest since may 2019. EUIL5Y5Y=R
For the U.S., the gap between two- and 10-year Treasury
yields at more than 100 basis points is now the widest in almost
three years. That is seen as a another key indicator of an
approaching economic recovery.
New U.S. President Joe Biden had told House Democrats on
Wednesday he was more concerned that too little relief would be
provided rather than too much. IT
U.S. stock futures ESc1 were also up ahead of trading
there with traders digesting a faster-than-expected drop in
weekly jobless claims and waiting on meeting between new U.S.
Treasury Secretary Janet Yellen and financial regulators to
discuss the recent retail trading volatility. .N
Wall Street had seen the NYSE Fang+ index of leading tech
giants .NYFANG hit another record high on Wednesday, thanks to
a 7.4% gain in Google parent Alphabet (NASDAQ:GOOGL) GOOG.O following 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%, ending 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 that 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 faded, stock prices of GameStop
GME.N and other social media favourites have steadied,
although cryptocurrency Ethereum has been on a tear ahead of the
introduction of futures contracts next week.
Among the mainstream currencies, the dollar hit a
near-three-month high versus 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 single currency had 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 1% to $1,810 per ounce though oil 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 0.8% to $56.14 per barrel and Brent
LCOc1 gained 0.6% to $58.89. Both stood near their highest
levels in about a year.

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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
Markets have rebounded strongly since COVID shock https://tmsnrt.rs/3cH3yEy
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(Additional Reporting by Sujata Rao in London and Hideyuki
Sano in Tokyo; Editing by Larry King, Kirsten Donovan and
Alexander Smith)