October 31, 2018 / 11:51 AM / 18 days ago

GLOBAL MARKETS-Shares bounce as bulls fight back after brutal October

* European shares rally on positive earnings

* Dollar hits 16-month high

* Offshore yuan at fresh 22-month low

* Euro zone, China growth worries persist

* Oil recovers after recent falls

* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh (Updates prices throughout, adds details)

By Tommy Wilkes

LONDON, Oct 31 (Reuters) - Stock markets bounced on Wednesday, bringing some relief after a brutal October in which equities have suffered one of their worst drops in a decade and spooked investors.

Sino-U.S. trade tensions, concerns about the global economy and higher U.S. interest rates and fears that corporate earnings’ growth is peaking have combined to shake financial markets this month, leaving most major markets in negative territory for the year.

That has spurred predictions that an almost decade-long bull-market has run its course.

Data overnight showing that China’s factory growth slowed to its lowest in two years has reinforced worries about weakening growth stemming from the trade conflict with the United States. That followed disappointing euro zone growth data published on Tuesday.

Investors rushed into the dollar, sending it to a 16-month high while the offshore Chinese yuan languished at a 22-month low.

A batch of positive earnings set a firmer tone for European stocks on Wednesday, though pan-European indexes are still headed for their weakest month since August 2015.

The leading euro zone stock index was up 1.7 percent in early trading, with the pan-European STOXX 600 up 1.7 percent and Germany’s DAX up 1.5 percent. Britain’s FTSE 100 increased 1.6 percent.

They tracked gains in Asia, where the MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1.5 percent, bringing month-to-date losses to 10.6 percent.

Wall Street was indicated higher at the open, with the S&P 500 e-mini futures 0.7 percent ahead.

The MSCI world equity index, which tracks shares in 47 countries, rose 0.6 percent but remains down 8.2 percent in October, its worst month since 2012.

The index is down 13 percent from all-time highs hit in January.

“Ultimately I’m still of the belief that we are in for more downside and rallies are for selling, but squeezes in bear markets are not normally comfortable affairs,” said Neil Campling, co-head of the global thematic group at Mirabaud Securities.

“I think a 2-3 day battle toward the top of the downtrend. Then we can return to the bigger picture - the mid-terms (U.S. elections), trade wars, rates etc. once a few shorts have been taken out of the tape.”

Concerns over growth in Asia and the euro zone come as the U.S. economy continues to look in healthier shape, spurring fresh demand for the dollar.

DOLLAR DOMINATES, YUAN SAGS

The greenback, measured against a basket of currencies , scaled a 2018 peak, while the euro nudged up slightly to $1.1350 after data showed euro zone inflation picking up in October.

“Euro zone growth figures have been disappointing and the Bank of Japan is striking a dovish stance at a policy meeting today so there is more room for the dollar to gain from current levels,” said Paul Bednarczyk, director of G10 FX at Continuum Economics based in London.

China’s offshore yuan fell to a 22-month low of 6.9795. In onshore markets it was flat at 6.9673 per dollar but remained near a decade low brushed on Tuesday.

The Chinese currency was on track for a loss of 1.4 percent in October, its seventh straight monthly loss, the longest such losing streak on record.

The Australian dollar fell 0.3 percent while the Japanese yen was flat at 113.12 versus the dollar, a three-week low.

The recovery in global stocks, including gains overnight on Wall Street, pushed Treasury yields higher. The 10-year U.S. bonds rose three basis points to 3.1397 percent.

Oil prices recovered as markets braced for the imposition of U.S. sanctions on Iran next week. O/R

U.S. crude futures rose half a percent to $66.49 per barrel after dropping to $65.33 on Tuesday, the lowest since mid-August.

Brent crude gained more than one percent to $76.75 before settling half a percent up at $76.29. Brent had declined 1.8 percent on Tuesday to two-month lows.

Gold, set for its best month since January, dipped on the stronger dollar, Spot gold prices were down 0.4 percent at $1,217 an ounce.

For Reuters Live Markets blog on European and UK stock markets open a news window on Reuters Eikon by pressing F9 and type in ‘Live Markets’ in the search bar. (Additional reporting by Saikat Chatterjee and Dhara Ranasinghe; Editing by Janet Lawrence and John Stonestreet)

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