August 8, 2014 / 3:10 PM / in 4 years

GLOBAL MARKETS-Shares, dollar down after Iraq strikes, but off lows

* Shares cut losses, Bunds pare gains as Iraq concerns
    * Treasury yields hit 14-month low
    * Oil trims gains
    * U.S. stocks open slightly higher on energy lift

 (Updates with U.S. market open, recasts, changes dateline,
previous LONDON, byline)
    By Chuck Mikolajczak
    NEW YORK, Aug 8 (Reuters) - Bond yields fell in key markets
worldwide on Friday as investors shifted to the safety of
government debt, spurred by U.S. President Barack Obama's
decision to authorize air strikes in Iraq, though most equity
markets recovered from overnight losses.
    The U.S. 10-year hit its lowest yield since June 2013 and
Germany's 10-year Bund fell to another record low, closing in on
1 percent. Oil rose on concern about the threat to oil supplies
in Iraq.
    Investors expect volatility to continue to rise, as the
uncertainty surrounding the ongoing conflict in Ukraine and
worsening conditions in Iraq will weigh heavily over the
    "People have been caught off guard. The geopolitical risks
have been treated as 'noise' by investors in the past few
months, but now they suddenly realise that it's much more than
just 'noise,'" said FXCM analyst Vincent Ganne.
    Obama said in an address that he authorized "targeted"
strikes to protect the besieged Yazidi minority and U.S.
personnel in Iraq. Hours after his statements, U.S. military
aircraft bombed Islamic State artillery attacking Kurdish forces
near Arbil, Iraq.   
    Yields on 10-year Treasuries and German Bunds
 - dropped as low as 2.349 and 1.023 percent,
respectively. The drops marked a 14-month low in yields for the
U.S. note and a third straight record low for the German Bund.
    Equity markets rebounded from their worst losses overnight,
with the MSCI All World Index down just 0.2
percent. Asian markets bore the brunt of the selling, with
Tokyo's Nikkei 225 losing 3 percent.
    A broad index of European stocks was off 0.7
percent and Germany's DAX Index lost 0.4 percent,
though that was off the day's worst levels. 
    Wall Street managed to post modest gains. The S&P 500 
gained 0.2 percent to 1,913.95.     
    The intensifying risks in one of the world's big
oil-producing countries jolted petroleum markets, sending U.S.
crude up more than $1 to $98.45 a barrel and Brent
 to $106.39 before both trimmed gains. U.S. crude was
last up 22  cents to $97.56 while Brent was down 9 cents to
    "The market will look very close at what happens next and
whether oil supplies from southern Iraq could be under threat,"
said Tetsu Emori, a commodity fund manager at Astmax Co Ltd in
    Fighting also resumed in Gaza between Palestinian militants
and Israel. 
    NATO called for Russia to "step back from the brink" of war
in Ukraine, while a Russian official said the nation would "make
all efforts" to de-escalate the conflict. 
    The dollar was off its lows but remained 0.2 percent
down having hit two-week trough of 101.49 against the
safe-haven Japanese yen.

 (Additonal reporting by Tricia Wright in London; Editing by
Nick Zieminski)
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