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Stocks rally, then ease on U.S.-China trade deal; oil gains

NEW YORK (Reuters) - Oil prices rose and a gauge of global equity markets hit a new high on Tuesday as investors awaited the signing of a China-U.S. trade deal they hope will spur world economic growth, after the economy in 2019 saw its weakest year since the financial crisis.

FILE PHOTO: Traders work on the floor at the New York Stock Exchange (NYSE) in New York, U.S., January 13, 2020. REUTERS/Brendan McDermid/File Photo

Gold prices slid as the planned signing Wednesday of the Phase 1 trade deal dampened both the appeal of safe-haven bullion and the Japanese yen, which dropped to eight-month lows.

MSCI’s all-country world index and shares on Wall Street set intra-day highs before backing off a bit as investors said the long-awaited trade deal was priced into the market. Stocks in Canada and Australia also surged to records.

Stocks on Wall Street turned lower after Bloomberg reported that existing U.S. tariffs on $360 billion of Chinese imports will likely stay in place past the U.S. presidential elections in November as Washington reviews compliance with the trade pact.

Investors fear the global economy may not turn up enough to lift corporate earnings and share prices if tariffs remain in place for most of this year, said Jim Paulsen, chief investment strategist at the Leuthold Group in Minneapolis.

“People thought the tariffs would come off, the arguing would quit and manufacturing would restart across the globe,” Paulsen said.

The Trump administration apparently would like to retain leverage over China to enforce the trade pact, he said, while noting that retaining the tariffs is just one factor affecting world growth, he said.

“But certainly it’s worth a trading headline in the afternoon,” Paulsen said.

Details are slowly emerging about the deal. China has pledged to buy almost $80 billion of additional manufactured goods from the United States over the next two years as part of a trade war truce, a source told Reuters on Monday.China would also buy over $50 billion more in energy supplies and boost purchases of U.S. services by about $35 billion over the same two-year period, the source said.

Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia, said reports of additional purchases “was incrementally positive.”

“The fact that the China thing is not getting worse and we have an agreement is lessening one of the things that could go wrong in 2020,” Tuz said.

MSCI's gauge of stocks across the globe .MIWD00000PUS shed 0.02%, while the pan-European STOXX 600 index .STOXX rose 0.29%.

On Wall Street, the Dow Jones Industrial Average .DJI rose 10.64 points, or 0.04%, to 28,917.69. The S&P 500 .SPX lost 7.28 points, or 0.22%, to 3,280.85, and the Nasdaq Composite .IXIC dropped 25.06 points, or 0.27%, to 9,248.87.

Overnight in Asia, Japan's Nikkei .N225 added 0.7% to hit its highest level in a month. Australian shares rose by the same margin to close at a record .AXJO.

Hong Kong's Hang Seng .HSI and Shanghai blue chips .CSI300 hit multi-month peaks before running out of steam.

China’s yuan was slightly weaker after earlier hitting a high last seen in July. The U.S. Treasury Department on Monday reversed its designation of China as a currency manipulator in what is seen as a conciliatory gesture before the trade deal is signed.

The dollar index .DXY rose 0.03%, with the euro EUR= down 0.06% to $1.1126. The yen JPY= weakened 0.02% versus the greenback to 109.97 per dollar.

Global oil benchmark Brent crude rose as the trade deal marks a major step in ending a dispute that has cut global growth and dented crude demand.

The trade dispute had a tangible impact on global oil demand last year, said Tamas Varga, an analyst at broker PVM. Varga pointed to 2019 demand growth of 890,000 barrels per day, compared with initial forecasts of 1.5 million barrels per day.

Brent crude LCOc1 gained 29 cents to settle at $64.49 a barrel and West Texas Intermediate crude futures CLc1 rose 15 cents to settle at $58.23 a barrel.

U.S. consumer prices rose slightly in December even as households paid more for healthcare, and monthly underlying inflation slowed, supporting the Federal Reserve’s desire to keep interest rates unchanged at least through this year.

The weak inflation report from the Labor Department on Tuesday came on the heels of data last week showing a moderation in job growth in December. Economists said these developments were flagging a sharp slowdown in domestic demand.

Benchmark 10-year notes US10YT=RR last rose 9/32 in price to yield 1.8161%.

U.S. gold futures GCv1 settled down 0.4% at $1,544.60 an ounce.

Reporting by Herbert Lash; Additional reporting by Lewis Krauskopf in New York and Ron Bousso in London; editing by Steve Orlofsky and Leslie Adler