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* Stocks rally, bond yields edge off highs
* U.S. stock futures higher
* Upbeat earnings support sentiment
(Changes dateline to London, updates throughout)
By Dhara Ranasinghe
LONDON, Feb 9 (Reuters) - World stock markets rallied on
Wednesday, putting aside worries about rising interest rates for
now to take some comfort from positive headlines coming out of
Ukraine and upbeat earnings.
The pan-European STOXX 600 climbed almost 1.5%.
That followed a strong session in Asia, where MSCI's broadest
index of Asia-Pacific shares outside Japan rose
1.5% to a two-week high and the blue-chip Nikkei closed 1.08%
higher.
U.S. stock futures pointed to a strong open for Wall Street,
where shares ended sharply higher on Tuesday.
News headlines over recent days suggesting tensions between
the West and Russia over Ukraine may be easing and a string of
upbeat earnings appeared to be lifting sentiment towards risk
assets, and a selloff in bond markets abated.
French President Emmanuel Macron, who met Russian President
Vladimir Putin on Monday, said on Tuesday he believed steps can
be taken to de-escalate the crisis in which Russia has massed
troops near Ukraine but says it does not plan an attack.
On the earnings front, French fund manager Amundi
on Wednesday posted a strong rise in earnings, quarterly results
from British drugmaker GSK beat forecasts, while Dutch
bank ABN Amro reported a higher-than-expected net
profit of 552 million euros for the fourth quarter.
"Last few days have seen positive headlines over
Russia/Ukraine with negotiations between Macron and Putin and
reports of German efforts to deescalate the crisis," said Mohit
Kumar, managing director, interest rates strategy, Jefferies.
"But we retain our view that a greater concern for risky
assets is a removal of central bank accommodation as markets
have become used to abundant liquidity and low rates for a long
period of time."
Major central banks have become more hawkish in the face of
stickier than anticipated inflation.
Barring any big surprises, Thursday's U.S. consumer price
index should cement expectations the Federal Reserve will raise
interest rates next month, with a strong print offering further
support to those tipping a larger 50 basis point rise.
Japan's 10-year government bond yield touched
0.215%, its highest since January 2016.
But after sharp sell-off, broader bond markets appeared to a
win a respite.
In early London trade, the U.S. 10-year Treasury yield was
down about 3 basis points at 1.92% but not far off
the highest levels since late 2019 hit on Tuesday.
Germany's 10-year Bund yield was 5 basis points lower on the
day at 0.21%.
Last week's hawkish stance by the European Central Bank has
left Bund yields 20 bps higher in the month so far and on track
for their biggest monthly rise in a year.
Rising borrowing costs and signs of rates normalisation in
Europe have boosted bank stocks -- a sub-index of European
banking stocks is at its highest since July 2018, up
almost 4% since last Thursday's ECB meeting.
Manishi Raychaudhuri, Asia-Pacific equity strategist at BNP
Paribas, said market volatility was lingering as investors tried
to figure out how often, how far and how fast central banks
would raise interest rates.
"The overarching theme for the market is central banks’
monetary policies," he said. "I think volatilities will continue
and will possibly increase ... but over the longer term
corporate balance sheets, particularly in Asian emerging markets
look a lot better than they were earlier."
Currency markets were relatively quiet, with the dollar
index, which measures the greenback against six peers,
little changed at 95.556.
Oil prices were slightly higher, recovering some ground from
a sharp drop on Tuesday when concerns of a possible rise in
supplies from Iran weighed on the market.
Brent crude futures rose 0.2%, to $90.97 a barrel,
while U.S. crude was at $89.52 a barrel, up 0.2%.
Spot gold was steady at $1,826.5 per ounce.
(Reporting by Dhara Ranasinghe; Additional reporting by Xie Yu
and Alun John in HONG KONG; Editing by Timothy Heritage)
