GLOBAL MARKETS-Shares flat but S&P hits new high; bonds rally on ECB hopes

Wed May 28, 2014 4:53pm EDT

* Risk appetite up, S&P 500 expected to extend record highs
    * Gold steadies at 3-1/2-month low as safe-haven appeal dims
    * Euro at three-month low as lending data back case for rate
cuts

 (Adds close of U.S. markets)
    By Herbert Lash
    NEW YORK, May 28 (Reuters) - Global equity markets traded
flat on Wednesday as U.S. and German equities eased from record
highs but risk appetite remained strong, knocking safe-haven
gold to nearly a 4-month low.
    U.S. and European bond markets rallied, pushing yields to
multi-month lows. Receding fears that big wins by anti-euro
parties in EU elections might derail fiscal reforms in weaker
countries helped European bonds.
    The recent rally in equities has been supported by strong
U.S. economic data and expectations of monetary easing by the
European Central Bank. The benchmark S&P 500 hit yet another
intraday record early in the session before retreating.
    Spot gold fell 0.4 percent to $1,258.00 an ounce,
having hit $1,255.66, marked its weakest since early February. 
On Tuesday, gold posted its biggest daily fall since
mid-December after U.S. and German stocks set record highs. 
    The 10-year U.S. Treasury note rose 21/32 in
price to yield 2.4431 percent, the lowest since last July. 
    "This is a split personality market with the S&P at or near
all time highs in anticipation of an improving economy and
higher earnings while the bond market and yields continue to
drop suggesting maybe caution is warranted," said Terry Sandven,
chief equity strategist at U.S. Bank Wealth Management in
Minneapolis. 
    MSCI's all-country world equity index traded
ever so slightly lower, falling 0.02 percent to 420.02, less
than 2 percent below its lifetime high.
    The FTSEurofirst 300 index of leading European
shares fell 0.07 percent to close at 1,377.83. 
    Wall Street edged lower, with the S&P turning south late in
the day.
    The Dow Jones industrial average closed down 42.32
points, or 0.25 percent, to 16,633.18. The S&P 500 lost
2.13 points, or 0.11 percent, to 1,909.78 and the Nasdaq
Composite dropped 11.994 points, or 0.28 percent, to
4,225.075.
    The dollar rose on softness among other major currencies
such as the euro, which fell below $1.36 on gathering
expectations of an ECB policy shift next week.
    The U.S. dollar index hit an eight-week peak of
80.581, reflecting a 0.29 percent decline for the trading day in
the euro against the U.S. currency. The index, a measure
of a basket of currencies, was last at 80.550, up 0.25 percent.
    A rally in German Bunds spilled over to U.S. Treasuries.
German 10-year Bund yields, the benchmark for euro
zone borrowing, were down at 1.287 percent, a 2014 low.
    Yields fell after an unexpected rise in German unemployment
and a deceleration in the euro zone money supply reinforced
expectations of further ECB stimulus at next month's meeting.
    U.S. crude fell more than $1 a barrel as traders took profit
ahead of inventory reports expected to show a build, while Brent
edged lower, propped up by tensions in Ukraine and Libya.
    Brent settled down 21 cents at $109.81 a barrel,
while U.S. oil fell $1.39 to settle at $102.72 a barrel.

 (Reporting by Herbert Lash; Additional reporting by Marc Jones
in London; Editing by Leslie Adler, James Dalgleish and Chizu
Nomiyama)