By Wayne Cole SYDNEY, April 9 (Reuters) - Asian share markets were in a more sober mood on Thursday as cracks quickly began to appear in the fragile Gulf ceasefire, nudging oil prices back up and
Equities turn around on renewed Middle East hopes, oil pares gains
Market Reactions to Middle East Developments
By Sinéad Carew and Marc Jones
NEW YORK/LONDON, April 9 (Reuters) - MSCI's global equities gauge gained modestly on Thursday while the dollar lost ground and oil's rally narrowed, after Israel sought peace talks with Lebanon and renewed hopes for the fragile Gulf truce.
Renewed Optimism for Middle East Peace
Investor optimism about the prospects for Middle East peace returned late in the U.S. morning when Israeli Prime Minister Benjamin Netanyahu said he wanted Israel to begin peace talks with Lebanon that would also include the disarming of Hezbollah, which is linked to Iran.
The announcement shook off some market anxiety the day after an Israeli bombardment of Lebanon killed more than 300 people and appeared to place Donald Trump's U.S.-Iran peace process in jeopardy. Iran had indicated that Lebanon should be part of the ceasefire that was announced on Tuesday night.
Impact on Oil Prices
Israel's strikes and scant signs of an opening of the Strait of Hormuz, a key oil conduit, had sent oil prices sharply higher earlier on Thursday.
But U.S. crude settled up 3.66%, or $3.46, at $97.89 a barrel, well below the $102.70 peak for the day, and Brent, after rising earlier to $99.50, settled for the day at $95.92 per barrel, up 1.23%, or $1.17.
Equity and Investor Sentiment
U.S. equity gains were relatively modest, however, compared with Wednesday's more than 2% rally, as investors still viewed the ceasefire as fragile. Mona Mahajan, head of investment strategy and asset allocation at Edward Jones in New York, said she is expecting "bumps along the way before we hit a real meaningful and steady state of reconciliation."
Market Assessment
"But, what markets are really reacting to is this idea that the worst-case scenario has been taken off the table. There was a real concern that, if things escalated, oil prices could stay meaningfully above $100 for an extended period of time," Mahajan said. "Markets are assessing that the direction of travel is headed towards reconciliation, some sort of peace agreement, and notably not headed in the wrong direction of escalation."
Major Index Performance
On Wall Street, the Dow Jones Industrial Average rose 275.88 points, or 0.58%, to 48,185.80, the S&P 500 rose 41.85 points, or 0.62%, to 6,824.66, and the Nasdaq Composite rose 187.42 points, or 0.83%, to 22,822.42.
MSCI's gauge of stocks across the globe rose 2.11 points, or 0.20%, to 1,033.16.
Earlier, the pan-European STOXX 600 index had closed down 0.15%.
Asian markets had reflected overnight jitters, with Japan's Nikkei falling 0.7% after jumping more than 5% on Wednesday. South Korea dipped 1.6%, following a leap of 6.8% in the prior session, and MSCI's broadest index of Asia-Pacific shares outside of Japan eased 0.7% after Wednesday's 5% rally.
Asset Performance Amid Geopolitical Uncertainty
ASSETS TURN ON MIDDLE EAST HOPES
Bond Market Movements
U.S. Treasuries were mixed with the yield on benchmark U.S. 10-year notes falling 0.2 basis point to 4.289%, from 4.291% late on Wednesday, while the 30-year bond yield rose 0.8 basis point to 4.8938%.
The two-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, fell 0.9 basis point to 3.785%, from 3.794% late on Wednesday.
Currency and Precious Metals
In currencies, the dollar index, which measures the greenback against a basket of currencies including the yen and the euro, fell 0.23% to 98.83, with the euro up 0.3% at $1.1697.
Against the Japanese yen, the dollar strengthened 0.34% to 159.12.
In precious metals, a weaker U.S. dollar lent support, while investors assessed the prospects for peace and awaited key inflation data.
Spot gold rose 1.12% to $4,769.23 an ounce while spot silver rose 2% to $75.60 an ounce.
Inflation Concerns and Economic Outlook
Inflation is a major concern for investors as they wait for March U.S. Consumer Price Index (CPI) data, which is expected to reflect the impact from oil prices that are still sharply higher than pre-war levels. The data is due on Friday before the market open.
"Inflation, while it will have some shock and awe in the next few months, should continue to move in the right direction through year-end," Mahajan said.
(Reporting by Sinéad Carew, Marc Jones; Editing by Hugh Lawson, Kirsten Donovan and Edmund Klamann)
