June 11, 2019 / 3:31 PM / 14 days ago

GLOBAL MARKETS-World share markets continue rally on trade, Fed hopes

* Wall Street follows Europe, China higher

* Dollar firm near 2 1/2-month lows

* U.S. yield curve flattens after data shows inflation pressure

* Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh (Updates prices after U.S. market open, adds commentary, changes dateline, previous LONDON)

By Sinéad Carew

NEW YORK, June 11 (Reuters) - Stock indexes around the world gained on Tuesday as investors piled into riskier assets as they bet on Federal Reserve interest rate cuts and that a U.S.-China trade agreement could follow the U.S.-Mexico deal.

In commodities trading, oil prices rose while gold came under pressure as investors turned to stocks.

Wall Street followed Europe higher after a surge in Frankfurt’s DAX on the return of German and Swiss investors from an extended holiday weekend. Earlier, China’s stocks rose on Beijing easing financing rules to boost local government spending on public works and expectations of lower central bank rates globally.

While some investors were still jumping into a rally sparked by a U.S.-Mexico trade and immigration agreement reached on Friday, others were looking ahead to the June 18-19 Fed meeting and expectations of trade talks between the United States and China leaders later in the month.

“The market is looking for the Fed to give an indication next week that it’s going to cut rates in July,” said Bruce Bittles, chief investment strategist at Robert W. Baird & Co in Sarasota, Florida.

“The fact the administration was able to strike a deal with Mexico cleared up that picture and gave an indication it’s willing to negotiate with China later this month... whether that happens is another thing.”

But Bittles was cautious about the sustainability of Wall Street’s current advance, noting that past rallies on trade news have often petered out after a day and a half.

The Dow Jones Industrial Average rose 58.33 points, or 0.22%, to 26,121.01, the S&P 500 gained 5.92 points, or 0.21%, to 2,892.65 and the Nasdaq Composite added 14.99 points, or 0.19%, to 7,838.15.

The pan-European STOXX 600 index rose 0.76% and MSCI’s gauge of stocks across the globe gained 0.43%.

Emerging market stocks rose 0.96%. MSCI’s broadest index of Asia-Pacific shares outside Japan closed 1.08% higher, while Japan’s Nikkei rose 0.33%. The Shanghai composite index closed up 2.6%.

FLATTER YIELD CURVE

In U.S. Treasuries trading, 2-year yields rose more quickly than 10-year yields, flattening the yield curve after Labor Department data showed rising producer prices in May for the second consecutive month, pointing to a steady pick-up in inflation pressure. An increase in prices could temper bets for rate cuts as the Fed uses rate hikes to contain inflation.

Benchmark 10-year notes last fell 5/32 in price to yield 2.1587%, from 2.141% late on Monday.

With fears easing that the United States would launch a trade war with Mexico, investors appeared to shrug off President Donald Trump’s threat to impose more tariffs on China if no progress was made in talks with President Xi Jinping. They are expected to meet at a Group of 20 summit on June 28-29.

Gold prices dipped as investors booked profits following robust gains over the past weeks, and demand for safe-haven bets waned due to hopes for a U.S.-China trade deal.

Spot gold dropped 0.2% to $1,325.34 an ounce.

In currency markets, the U.S. dollar index was flat as investors focused on the U.S.-China trade war and economic data for signals of growth and whether the Fed is likely to cut rates in the coming months.

The dollar index rose 0.03%, with the euro up 0.03% to $1.1315.

Oil futures rose as firmer equities and expectations OPEC and its allies will keep withholding supply countered concern about slowing economies and demand.

U.S. crude rose 0.69% to $53.63 per barrel. (Additional reporting by Kate Duguid and Karen Brettell in New York, Tom Wilson, Sujata Rao and Dhara Ranasinghe in London; Shinichi Saoshiro in Tokyo; editing by Andrew Cawthorne, Larry King and Dan Grebler)

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