Stocks gain on Russia bets but Treasuries fall only marginally

NEW YORK Mon Aug 11, 2014 4:52pm EDT

Traders are pictured at their desks in front of the DAX board at the Frankfurt stock exchange August 11, 2014.      REUTERS/Joachim Herrmann/Remote

Traders are pictured at their desks in front of the DAX board at the Frankfurt stock exchange August 11, 2014.

Credit: Reuters/Joachim Herrmann/Remote

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NEW YORK (Reuters) - A global gauge of equities rose for a second straight day on Monday, posting its largest daily advance in four months on bets on a reduced risk of direct conflict between Russia and Ukraine.

The yield on benchmark U.S. debt rose only slightly while spot gold prices barely ticked lower.

Perception among stock buyers of a de-escalation of the conflict in the Russia-Ukraine border held even as Russia was sending an aid convoy to eastern Ukraine, after the West warned Moscow against using humanitarian help as a pretext for an invasion.

NATO sees a "high probability" of a Russian invasion of eastern Ukraine as some 20,000 Russian troops massed on the nearby border. Kiev had the number at 45,000 Russian troops.

"News of humanitarian efforts (in eastern Ukraine) seem to have soothed the markets," said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia.

"It seems like U.S. investors who are taking a risk on Russian equities don't deem NATO's statement as a legitimate concern. They're taking Russia's actions at face value, and not interpreting it as a cover for military action."

The Market Vectors Russia ETF (RSX.P) gained 1.4 percent while the dollar-denominated RTS index .IRTS rose 2.8 percent and the rouble-based MICEX rose 1.8 percent.

Investors also monitored Iraq, where the United States recently began air strikes targeting Islamic State fighters marching on the country's Kurdish capital. In Baghdad, the political showdown continued as Nuri al-Maliki refused to bow to U.S. and Iranian pressure to step aside after Iraq's president named a less polarizing prime minister.

An MSCI index of stocks in top developed and emerging countries .MIWD00000PUS shot up 0.8 percent, the most for any day in four months, though it was still down more than 3 percent from a record closing high set early in July.

The pan-European FTSEurofirst 300 index .FTEU3 jumped 1.3 percent after losing 2 percent last week.

U.S. stocks also got a lift from Federal Reserve Vice Chairman Stanley Fischer, whose dovish comments could damp down hawkish bets that the Fed is ready to start a tightening cycle in monetary policy.

Yields on 10-year U.S. debt rose from 14-month lows hit Friday following a 72-hour truce between Israelis and Palestinians as both sides sought to end their month-old war in Gaza.

Unpredictable developments in the Middle East and Russia kept the safety bid alive and the yield on the 10-year U.S. Treasury note US10YT=RR edged up just 7 basis points to 2.422 percent. On Friday, it briefly fell to 2.349 percent, a level not seen since June 2013.

The euro remained under pressure against the U.S. dollar on expectations of monetary policy easing from the European Central Bank and the effect of sanctions on Russia.

"We can see continued euro weakness because of the geopolitical tension on its doorstep," said Alan Robinson, global portfolio advisor at RBC Wealth Management in Seattle.

Germany is Russia's largest trading partner in the European Union. EU sanctions announced last month restrict the export to Russia of equipment to modernize the oil industry and prohibit the sale of machinery, electronics and other civilian products that can be used for military or defense purposes.

"However," said Robinson, "geopolitical tension could dissipate quickly. And if that were to happen, we might see a relief rally in the euro. I think we have to be a little careful here, as the euro has come down fairly significantly."

The euro was down 0.2 percent on the day against the dollar at $1.3386 EUR=.

U.S. crude oil CLc1 and Brent crude futures LCOc1 were mixed, with U.S. crude ticking up 25 cents to $97.90 per barrel and Brent crude edging down 47 cents to $104.55.

Spot gold XAU= edged 0.1 percent lower to $1,308 an ounce.

(Additional reporting by Akane Otani, Gertrude Chavez-Dreyfuss and Richard Leong; Editing by Jan Paschal and Chris Reese)

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