GLOBAL MARKETS-Bond yields fall after Iraq strikes; Wall St gains

Fri Aug 8, 2014 1:52pm EDT

* Shares cut losses, Bunds pare gains as Iraq concerns
settle
    * Treasury yields hit 14-month low
    * Oil trims gains, Brent turns lower
    * U.S. stocks climb as utilities lead

 (Adds European market close)
    By Chuck Mikolajczak
    NEW YORK, Aug 8 (Reuters) - Bond yields fell in key markets
worldwide on Friday as investors moved to the safety of
government debt after U.S. President Barack Obama's decision to
authorize air strikes in Iraq, but most equity markets rebounded
from overnight lows.
    The U.S. 10-year hit its lowest yield since June 2013 and
Germany's 10-year Bund fell to another record low, closing in on
1 percent. Oil rose on concern about the threat to oil supplies
in Iraq.
    Investors expect volatility to continue to rise, as the
uncertainty surrounding the ongoing conflict in Ukraine and
worsening conditions in Iraq will weigh heavily over the
weekend. 
    But U.S. equities managed to climb, with major indexes
hitting session highs after an Interfax news agency report that 
Russia's Defense Ministry said it had finished military
exercises it was conducting near the border with Ukraine,
serving to lessen investor nervousness. 
    "What is going on here is right now these geopolitical
events are kind of limited to these regions and haven't really
spread materially to the U.S. or other major markets, but there
is the potential for that to happen," said Jeff
Kravetz, Regional Investment Director at U.S. Bank Wealth
Management in Phoenix, Arizona. 
    "It kind of defies logic that we've got the stock market
rallying today and going into the weekend that we don't have
traders making more conservative moves."
    The Dow Jones industrial average rose 155.61 points
or 0.95 percent, to 16,523.88, the S&P 500 gained 17.64
points or 0.92 percent, to 1,927.21 and the Nasdaq Composite
 added 32.92 points or 0.76 percent, to 4,367.89.
    Obama said in an address that he authorized "targeted"
strikes to protect the besieged Yazidi minority and U.S.
personnel in Iraq. Hours after his statements, U.S. military
aircraft bombed Islamic State artillery attacking Kurdish forces
near Arbil, Iraq.   
    Yields on 10-year Treasuries and German Bunds
 dropped as low as 2.349 and 1.023 percent,
respectively. The drops marked a 14-month low in yields for the
U.S. note and a third straight record low for the German Bund.
    
    Equity markets rebounded from losses overnight, with the
MSCI All World Index up 0.1 percent. Asian
markets bore the brunt of the selling, with Tokyo's Nikkei 225
 losing 3 percent.
    A broad index of European stocks ended down 0.7
percent and Germany's DAX Index lost 0.3 percent, but
was off the day's worst levels. 
    The intensifying risks in one of the world's big
oil-producing countries jolted petroleum markets, sending U.S.
crude up more than $1 to $98.45 a barrel and Brent
 to $106.39. 
    But oil prices later trimmed gains, with U.S. crude last up
25 cents to $97.59, while Brent turned lower to fall 61 cents at
$104.83 as analysts said the strikes may lower the risk of
supply disruptions. 
    Fighting also resumed in Gaza between Palestinian militants
and Israel. 
    NATO called for Russia to "step back from the brink" of war
in Ukraine, while a Russian official said the nation would "make
all efforts" to de-escalate the conflict.  
    The dollar was off its lows but remained 0.2 percent
down having hit two-week low of 101.49 against the
safe-haven Japanese yen.

 (Additonal reporting by Tricia Wright in London; Editing by
Nick Zieminski)
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