GLOBAL MARKETS-Shares, dollar pare losses after Iraq sell-off

Fri Aug 8, 2014 8:59am EDT

* Shares cut losses, Bunds pare gains as Iraq concerns
settle
    * U.S. stock futures turn positive, Treasury yields near
14-month low
    * Oil trims gains, gold near highest since July 18

    By Marc Jones
    LONDON, Aug 8 (Reuters) - World shares and the dollar fell
on Friday and oil and gold rose after President Barack Obama
authorised targeted air strikes in Iraq, stoking fears of
another drawn-out conflict in the region.
    Fighting also resumed in Gaza between Palestinian militants
and Israel while NATO's calls for Russia to "step back from the
brink" of war in Ukraine were still ringing in ears of volatile
markets.  
    "Earlier this week, one Iraqi in the area cried to the
world, 'There is no one coming to help'," said Obama, who has
been reluctant to go back into Iraq having withdrawn in 2011.
"Well, today America is coming to help." 
    Global share markets had already been
heading for a second week of straight losses but the latest
developments sparked a fresh sell-off. 
    European stocks fell more than 1 percent after
similar falls in Asia though they had begun to
claw back ground as the start of U.S. trading neared.    
    "We still don't know what's going to happen (in Iraq and
Ukraine), so maybe things moved a little bit too fast this
morning," said Rabobank strategist Emile Cardon.
    "For now at least there isn't anymore bad news, but it's
still very uncertain and I'm not sure how long this is going to
last."
    Having pointed south for much of the day, Wall Street stock
futures had turned around to signalled opening gains of
0.2-0.3 percent for U.S. markets. 
    Germany's Dax index, Paris's CAC and
markets in Italy and Spain had got themselves
back level or higher by 1215 GMT leaving only the FTSE in London
 in the red, as demand for safe-haven bonds also cooled.
    Obama said in an address that he authorised "targeted"
strikes to protect the besieged Yazidi minority and U.S.
personnel in Iraq, while Secretary Of State John Kerry said on
Friday the stakes for Iraq couldn't be clearer. 
    He added the sweeping advance by Islamist militants showed
"all the warning signs of genocide" and came after Thursday's
call from U.N. Secretary-General Ban Ki-moon for the
international community to help Iraq's government and people.
 
   
    
    OIL PRESSURE
    The intensifying risks in one of the world's big
oil-producing countries delivered an immediate jolt to oil
markets, sending U.S. crude up more than $1 to $98.45 a
barrel and Brent to $106.39 before both trimmed down
gains. 
    Brent spiked above $115 in mid-June on fears that violence
in Iraq would disrupt oil supplies, but fell back as it become
clear the fighting remains well away from the main oil fields in
the south. 
    In late-night remarks televised from the White House, Obama
insisted he would not commit ground forces and had no intention
of letting the United States "get dragged into fighting another
war in Iraq."
    But markets were pondering the possibility of just that. 
    The dollar was off its lows but remained 0.2 percent
down having hit two-week trough of 101.68 against the
safe-haven Japanese yen.
    Yields on 10-year Treasuries and German Bunds
 - global investors' tradition go-to assets in times
of tension - also nudged back up have dropped as low 2.375 and
1.026 percent respectively. 
    Events in Iraq and the economic sanctions and tensions over
Ukraine have "an impact on confidence and this is what you have
to watch," said Didier Duret, chief investment officer at ABN
Amro, adding a big rise in tensions could even force the Federal
Reserve to hold off from raising interest rates.
    
    RUSSIAN BOUNCE
    Stronger-than-expected export growth from China did little
to offset the broader sense of nervousness.  
    Gold, another safe haven, hit $1,318.80 an ounce, its
highest since July 18 as headed for a weekly rise of almost 2
percent. The yen is also up and German Bund yields have hit a
string of record lows this week. 
    Offering perhaps one of the biggest signals yet of a growing
wariness over risk assets, Lipper data on Thursday showed
investors pulled a record $7.1 billion from U.S.-based junk bond
funds over the last week and bailed out of equity
exchange-traded funds at the fastest pace in six months.
 
    "It seems only a short time ago that traders were talking
corrections, but now it seems only a matter of time before we
see technical bear markets" in some assets, IG chief market
strategist Chris Weston wrote in a note to clients.
    Among the few markets to put of positive spins on the Iraq
situation were Russian stocks,  up for the first
time in seven sessions, albeit firmly on course for a fourth
week of back-to-back falls.
    The rouble, however, was hovering at a four and half
month low against the dollar and the cost of insuring against a
Russian debt default rose to a three-month high on concerns
about the potentially escalating sanctions tussle with the West.
 

 (Reporting by Marc Jones; Editing by Toby Chopra/Ruth
Pitchford)