GLOBAL MARKETS-U.S. Treasury yields fall, dollar firms on stimulus worries

* European stocks firmer
* U.S. relief package may be 4-6 weeks away
* Italian PM Conte resigns
* Dollar supported by lower risk appetite
* Fed meets on Tuesday-Wednesday, no fireworks expected
* Asian stock markets: https://tmsnrt.rs/2zpUAr4

By Tom Arnold
LONDON, Jan 26 (Reuters) - U.S. Treasury yields hovered
close to three-week lows while stock markets were mixed on
Tuesday as concerns about potential roadblocks to new U.S.
President Joe Biden's planned $1.9 trillion stimulus weighed on
investor sentiment.
Mounting coronavirus cases and caution ahead of the U.S.
Federal Reserve's policy meeting this week also dulled appetite
for risk, lending support to the dollar against a basket of
currencies. Oil prices edged down.
Italian government bond yields were lower as Prime Minister
Giuseppe Conte handed in his resignation to the head of state,
hoping he would be given an opportunity to put together a new
coalition and rebuild his parliamentary majority. But European stock markets .EU were higher after two
sessions of declines, with the pan-European STOXX 600 .STOXX
up 1.1% after Swiss wealth manager UBS UBSG.S posted a surge
in quarterly net profit. "The earnings season up to now has been very good, so it
comes back to the fact the market has been overbought and had a
strong rally since Jan. 1, with a lot of positive news priced
in," said Francois Savary, chief investment officer at Swiss
wealth manager Prime Partners, referring to recent losses.
"There is room for some consolidation."
E-Mini futures for the S&P 500 ESc1 were 0.1% firmer. On
Monday the Nasdaq index .IXIC scaled a new peak, but the Dow
Jones Industrial Average index .DJI slipped .N .
South Korea .KS11 and Hong Kong HSI topped losers in
Asia overnight, falling more than 2% apiece. The sell-off also
saw Japanese stocks .N225 slip 1% and Chinese blue-chips
.CSI300 tumble 2%, their biggest one-day loss since Sept. 9.
All had touched milestone highs earlier this month.
MSCI's All-Country World index .MIWD00000PUS , which tracks
stocks across 49 countries, was 0.2% stronger, while MSCI's
emerging market stock index .MSCIEF was 1.5% lower.
Simmering tensions in the Taiwan Strait and South China Sea
added to caution in Chinese markets, where a jump in small-cap
short bets has also caught regulators' attention. a "buy everything" rally over several months supported
by money-printing pandemic stimulus packages, near-zero interest
rates and the start of COVID-19 vaccination programmes, some
investors are worried markets may be near 'bubble' territory.
They point to rocketing prices of assets such as bitcoin or,
on Monday, the soaring stock of short-squeezed videogame
retailer Gamestop GME.N . U.S. lawmakers agreed that getting COVID-19 vaccines to
Americans should be a priority even as they locked horns over
the size of a pandemic relief package. Democratic Majority
Leader Chuck Schumer nevertheless warned the relief package may
be four to six weeks away. Disagreements have meant months of indecision in the United
States, where new COVID-19 cases have been above 175,000 a day
and millions of people are out of work.
"We suspect earnings may not be able to catch up with what
people expect this year," said Jacob Doo, chief investment
officer at Envysion Wealth Management, citing the lockdowns in
Europe and the slow roll out of vaccines in the United States.
"Within the tech space, we are cautious on FANGS now, simply
because there could be anti-trust laws that Biden would
implement," he added, using an acronym for major U.S. tech
companies including Facebook (NASDAQ:FB) and Amazon.
Investors are also looking ahead to the Federal Reserve's
Federal Open Market Committee meeting on Tuesday and Wednesday.
"We expect the January FOMC to repeat and reinforce the
Fed's existing dovishness, which is still significant given the
recent taper discussions and other central banks' considerations
to adapt policy," CitiFX strategist Ebrahim Rahbari said in a
note.
Against a basket of its rivals =USD , the dollar rose 0.2%
to 90.65, its highest since Jan. 20, as volatility in stocks
dulled appetite for riskier currencies.
The euro EUR=EBS , which fell on Monday after a survey
showed German business morale slumping, was flat at $1.21455.
USD/
The benchmark 10-year U.S. Treasury yield US10YT=RR was
last trading at 1.0482%, after earlier slipping a fraction to
fresh three-week lows. US/
Amid the political manoeuvring in Italy, Germany's 10-year
bond yield fell a basis point to a two-week low of -0.561%
DE10YT=RR before recovering some ground, while Italian 10-year
yields IT10YT=RR were at 0.620%, having earlier touched a
day's high of 0.655%. After rising nearly 1% on Monday, Brent crude LCOc1 was
0.8% firmer at $56.31, while U.S. crude added 0.8% to $53.20.
O/R
Spot gold XAU= fell 0.2% to $1,852.30 per ounce.

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