GLOBAL MARKETS-Wall Street advances, European stocks pare losses on reports of U.S.-Iran truce extension

* Crude drifts higher amid continued closure of the Strait of Hormuz

* US GDP revised lower, orders for ​capital goods unexpectedly drop

* Fed ⁠rate hike expectations rise as U.S. inflation data seen above target

* Dollar weakens against ​euro, yen (Updates prices and adds investor comment in paragraphs 4-5)

NEW YORK, May 28 (Reuters) - U.S. stocks turned higher on Thursday and European shares pared their losses following reports that the United States and Iran have ​reached ‌an agreement to extend the ceasefire and launch negotiations, a welcome development after the two nations exchanged air strikes. The S&P 500 and the Nasdaq reversed earlier losses, setting course for the latest in a series of ⁠record closing highs, while European shares, though off session lows, closed lower on the day. The United States and ⁠Iran have agreed to memorandum-of-understanding that extends the truce for another 60 days ​to allow for negotiations, according to sources familiar with the matter. But the agreement still needs the approval of U.S. President Donald Trump, and comes after Iran targeted a U.S. air base in Kuwait and the United States struck what Washington described as an Iranian drone complex near the Strait of Hormuz.

"There's certainly been a degree of day-to-day volatility in markets as a result of ​geopolitical events," said Bill ‌Merz, head of Capital Market Research at U.S. Bank Wealth Management in Minneapolis.

"But in spite of all the negative news and uncertainty around the Middle East, we're seeing this intersection of fundamentals and market signals really sending a consistent message that growth is strong, growth-oriented assets continue to perform, and we're at all-time highs." A raft of economic data showed first-quarter U.S. GDP grew at a more sluggish pace than originally reported, the saving rate sank to its lowest level since June 2022, inflation continued to heat up, and new orders for core-capital goods - a barometer for corporate ​spending plans - unexpectedly dropped.

The combination of weak GDP and rising price growth presents the U.S. Federal Reserve, now under the Chairmanship of Kevin Warsh, with a dilemma regarding the central bank's ‌monetary policy.

"What the numbers point to today is simply that we have a stagflation problem, and that's a big problem for the Fed,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York. “We have growth that's not that strong and rising inflation, ‌and that suggests that a Fed (interest rate) hike is getting closer to reality as opposed to a rate cut.” The Dow Jones Industrial Average fell 38.37 points, or 0.08%, to 50,605.91, the S&P 500 rose 43.45 points, or 0.58%, to 7,563.81 and the Nasdaq Composite rose 241.24 points, or 0.89%, to 26,915.98.

European shares dropped as U.S.-Iran developments kept risk appetite low, but pared steeper losses ​on reports U.S. and Iranian agreed to extend the ceasefire and begin negotiations. MSCI's gauge of stocks across the globe rose 2.91 points, or 0.26%, to 1,125.19. The pan-European STOXX 600 index fell 0.49%, while Europe's broad FTSEurofirst 300 ‌index fell 12.10 points, or 0.48%. Emerging market stocks fell 11.39 points, or 0.65%, to 1,727.74.

Oil prices were split; U.S. WTI edged higher, while Brent, more vulnerable to Strait of Hormuz traffic disruptions, dipped.

U.S. crude rose 0.25% to settle at $88.90 per barrel, while Brent settled at $93.71 per barrel, down 0.62% on the day.

U.S. Treasury yields turned lower following weaker-than-expected U.S. economic data and news of the potential ⁠interim deal between ⁠Washington and Tehran. The yield on benchmark U.S. 10-year notes fell 2.6 basis points to 4.455%, from 4.481% late on Wednesday. The 30-year ‌bond yield fell 2.5 basis points to 4.9857% from 5.011% late on Wednesday. The 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, fell 0.6 basis points to 4.027%, from 4.033% late ​on Wednesday.

The dollar edged lower in the wake ​of the largely disappointing economic data and reports of the latest ceasefire extension in the three-month U.S.-Iran conflict. The dollar index, which measures ‌the greenback against a basket of currencies including the yen and the euro, fell 0.27% to 99.02, with the euro up 0.21% at $1.1648. Against the Japanese yen, the dollar weakened 0.16% to 159.26. In cryptocurrencies, bitcoin fell 2.18% to $73,527.13. Ethereum declined 1.89% to $2,021.07.

Gold prices pared earlier losses following the release of U.S. inflation data and reports of a U.S.-Iran ceasefire extension. Spot gold rose 1.05% to $4,503.70 an ounce. U.S. gold futures rose 1.24% to $4,503.40 an ounce.