GLOBAL MARKETS-Easing Russia tensions spur Wall St rally; bonds also gain

Fri Aug 8, 2014 4:31pm EDT

* U.S. stocks add to gains in late trading on Russia
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    * Treasury yields hit 14-month low
    * Oil trims gains, Brent turns lower

 (Updates with close of U.S. markets)
    By Chuck Mikolajczak
    NEW YORK, Aug 8 (Reuters) - Wall Street rallied on Friday
after Russia said it ended military drills near Ukraine,
soothing investor nerves over regional tensions, but bond yields
fell in key markets worldwide after U.S. President Barack Obama
authorized air strikes in Iraq.
    U.S. equities extended gains in late trading, with major
indexes hitting session highs. Russia's Defense Ministry said it
had finished military exercises in southern Russia, which the
United States had criticized. 
    "The active saber-rattling is probably over but the threat
is still there and yet we've chosen to overlook this," said Kim
Forrest, senior equity research analyst, Fort Pitt Capital Group
in Pittsburgh. 
    "The equity people definitely see the glass half full and
the bond people see it half empty, and that is what we are
seeing today is that fundamental split between the basic natures
of the traders."
    The Dow Jones industrial average rose 185.66 points
or 1.13 percent, to 16,553.93, the S&P 500 gained 22.02
points or 1.15 percent, to 1,931.59 and the Nasdaq Composite
 added 35.9 points or 0.83 percent, to 4,370.9.
    The rally marked the best one day-performance for the Dow
and S&P 500 since March 4 and spurred the major index to modest
gains for the week, with the Dow and Nasdaq notching a 0.4
percent weekly gain and the S&P up 0.3 percent. 
    The benchmark 10-year U.S. Treasury note was up
3/32, the yield at 2.424 percent. Air strikes in Iraq earlier
drove U.S. yields to their lowest since June 2013 before price
gains eased after the Russian statement and Germany's 10-year
Bund fell to another record low, closing in on 1 percent. 
    Obama said in an address he authorized "targeted" strikes to
protect the besieged Yazidi minority and U.S. personnel in Iraq.
Hours later, U.S. aircraft bombed Islamic State artillery
attacking Kurdish forces near Arbil, Iraq.   
    Equity markets rebounded from earlier losses, with the MSCI
All World Index up 0.2 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 biggest
oil-producers jolted oil markets, at one point sending U.S.
crude up more than $1 to $98.45 a barrel and Brent
 to $106.39. 
    But oil prices trimmed gains. U.S. crude settled up 31 cents
to $97.65, while Brent turned lower to settle down 42 cents at
$105.02 as analysts said the strikes may lower the risk of
supply disruptions. 
    Fighting also resumed in Gaza between Palestinian militants
and Israel. 
    The dollar was off its lows but remained 0.2 percent
down, having hit a two-week low of 101.49 yen against the
safe-haven Japanese currency.

 (Editing by Nick Zieminski and James Dalgleish)