GLOBAL MARKETS-Dollar gains on ECB stimulus talk, stocks decline

Fri May 9, 2014 1:58pm EDT

* Investors position for more ECB stimulus in June

* Lower-rated euro zone debt yields fall to record lows

* Global equity markets decline after record peaks Thursday

* Oil prices ease after gaining on Ukraine tensions (Adds close of European bond, stock markets)

By Herbert Lash

NEW YORK, May 9 (Reuters) - The U.S. dollar strengthened against the euro and Japanese yen on Friday after the European Central Bank signaled it could deliver fresh monetary stimulus next month, while global equity markets eased after hitting record peaks this week.

Lower-rated euro zone bonds rallied after ECB President Mario Draghi gave his clearest signal yet that policy-makers might act in June to stem slowing inflation and bolster a fragile economic recovery in the single currency bloc.

Italian, Spanish and Irish borrowing costs fell to record lows after the ECB raised the prospect that it could embark on an asset purchase program if inflation remained persistently low.

Spain and Italy, which two years ago were at the forefront of the euro zone debt crisis, badly need the recovery to gain traction to curb high debt levels.

Yields on Italian and Spanish 10-year bonds hit record lows of 2.90 percent and 2.87 percent respectively, before paring those gains as investors squared off positions into the weekend, traders said.

Irish 10-year bonds dropped to lows of 2.65 percent , below the equivalent borrowing costs of the UK, which contributed significantly to its bailout four years ago.

The euro fell 0.52 percent to 1.3768 against the dollar. The dollar basket rose 0.58 percent and the dollar gained 0.12 percent against the yen to 101.77.

John Doyle, currency strategist at Tempus Inc in Washington, said the euro's decline from Thursday has eased a bit and that Draghi has tried in the past to talk down the currency's strength.

"Until the ECB actually acts, I don't see a sustained rally in the dollar. The market has been calling Draghi's bluff," Doyle said.

A measure of global equity performance, MSCI's all-country world index, fell 0.27 percent after advancing to its highest since November 2007 on Thursday.

In Europe, the pan-European FTSEurofirst 300 index slipped 0.26 percent to close at 1,355.40, after hitting its highest level since May 2008 on Thursday.

On Wall Street, the major stock indices rebounded, but still traded near their level at the beginning of the year. The benchmark S&P 500 is up a bit more than 1 percent for the year, and has traded within a rough 35-point range for two months.

The Dow Jones Industrial average rose 27.43 points, or 0.17 percent, to 16,578.4. The S&P 500 gained 1.04 points, or 0.06 percent, to 1,876.67 and the Nasdaq Composite added 11.183 points, or 0.28 percent, to 4,062.678.

A rebound in so-called momentum growth stocks, such as Google Inc, Priceline Group and Twitter Inc , led the advance.

"We've seen days of investors trying to see if there's a bottom in these Nasdaq stocks," Rick Meckler, president of hedge fund LibertyView Capital Management in Jersey City, New Jersey.

"There's some fear among investors that their steep fall-offs are a precursor of something to the broader market, and when they rebound, even temporarily, it seems to give confidence to the overall market," he said.

Brent crude gave up initial gains as investors worried that the spreading conflict in Ukraine could disrupt supply from Russia, the world's top oil producer.

Brent crude for June rose 2 cents to $108.06 a barrel. U.S. oil was down 4 cents at $100.22.

U.S. Treasuries drifted lower as the 30-year long bond again surrendered price gains following an unexpectedly costly $16 billion government auction of new 30-year debt.

Yields on 30-year Treasuries, which have been favored in recent months by pension fund buyers, stood at 3.4761 percent, reflecting a price decline of 26/32.

The benchmark 10-year note fell 8/32 to yield 2.6323 percent. (Additional reporting by Francesco Canepa in London. Editing by Andrew Hay and Andre Grenon)