Global markets rally, European Stoxx 600 up over 2%
Oil sharply lower
Bond yields tumble after relief rally on Wall Street on Monday
Updates throughout
By Sophie Kiderlin and Gregor Stuart Hunter
LONDON/SINGAPORE, March 10 (Reuters) - Global stocks rallied and oil prices fell sharply on Tuesday after U.S. President Donald Trump declared the Middle East war could be "over soon", although defiant comments from Iran’s military complicated hopes of a swift resolution.
Europe's STOXX 600 index .STOXX was last up 2.2% after declining for three consecutive trading days. MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rose around 3.3%.
Brent oil futures fell as much as 11% to below $88.05 per barrel at one point, before trimming their decline to about 9%.
Trump's remarks on Monday injected optimism that contrasted with events in Iran, where hardliners rallied behind new Supreme Leader Mojtaba Khamenei and the Revolutionary Guards said a blockade of oil exports would continue until U.S. and Israeli attacks end. Trump said the U.S. would hit Iran much harder if it blocked exports.
The strong reaction to Trump's remarks "really does highlight how the markets are literally hanging on every word he says," Fiona Cincotta, senior market analyst at City Index said.
However, uncertainty persists and further volatility could lie ahead, she added.
"We're still sticking with this theme of volatility very much. The markets remain volatile because they're still being very much headline driven. And that obviously means that any comments can send the market sort of one way or the other," Cincotta said.
Competing signals whipsawed global markets on Monday: oil prices initially spiked and Wall Street stocks tumbled before rebounding sharply after Trump's comments and reports suggesting Washington may relax sanctions on Russian energy.
A GLOBAL REBOUND
Steadier investor sentiment triggered a global rebound in shares on Tuesday, while government bond yields eased and interest rate expectations shifted again.
European indexes followed Asia higher, with Germany's DAX .GDAXI up 2.5% and France's CAC 40 .FCHI adding around 2%.
Money markets cut the chances of a European Central Bank rate hike this year, after this was more than fully priced in late on Monday, while the benchmark German 10-year bond DE10YT=RR fell almost two basis points to 2.8455%.
Rate-sensitive two-year yields fell more sharply, with Germany's down nearly 5 bps. Britain's dropped 8 bps to 3.90% after hitting 4.23% on Monday at the height of market worries that surging oil prices would reignite inflation and prompt central banks in Europe to tighten policy later this year.
"Market pricing suggests weeks of disruptions, not days or months," analysts at BlackRock Investment Institute wrote. "There’s a risk of a stagflationary shock but it’s not a given, as market pricing indicates."
The yield on the U.S. 10-year Treasury note US10YT=RR was down 3 bps at 4.102%, even as traders pushed out bets on the timing of the Federal Reserve's next rate cut, with the first reduction now not seen until July, according to the CME Group's FedWatch tool.
"We are still at troubling levels," ING analysts said, referring to bond yields. "Expect nominal yields to fall for a bit on a reversal trade. But don't expect a dramatic structural rally in bonds," they wrote in a client note.
U.S. equity futures were last higher, with S&P 500 e-mini futures EScv1 up 0.37%.
The U.S. dollar index =USD, which measures the greenback against a basket of six major peers, was last slightly lower at 98.58, extending Monday's sharp fall.
Gold XAU= was up 0.9% at $5,184.75, holding within its trading channel of the past week, while cryptocurrencies rose, with bitcoin BTC= adding 3% to $71,097.68 and ether ETH= up 2.1% at $2,068.94.
(Reporting by Gregor Stuart Hunter in Singapore and Sophie Kiderlin in London. Editing by Jamie Freed and Mark Potter)
((gregor.hunter@thomsonreuters.com))
