By Herbert Lash
NEW YORK (Reuters) - Bond yields edged higher while a gauge of global equity markets hit a record high on Monday, lifted by optimism over the planned signing this week of a U.S.-China trade deal and hopes the start of the U.S. corporate earnings season will not disappoint.
Gold prices fell almost 1% ahead of the signing at the White House on Wednesday of the Phase 1 trade deal and as a de-escalation in U.S.-Iran tensions in the Middle East reduced bullion's safe-haven appeal.
U.S. and euro zone government bond yields rose as the trade deal marks a major step in ending a dispute that has cut global growth and boosted demand for such safe-haven assets as bonds, gold and currencies like the Japanese yen and Swiss franc.
MSCI's gauge of stocks across the globe <.MIWD00000PUS> gained 0.51%, topping a record set on Friday, while emerging market stocks rose 0.96%. The benchmark S&P 500 <.SPX> and tech-heavy Nasdaq composite <.IXIC> indexes also hit all-time and closing highs on Wall Street.
The United States is planning to lift its designation of China as a currency manipulator, Bloomberg reported, citing people familiar with the matter, a move that added to the positive mood among investors.
Middle East tensions rose after the United States killed a top Iranian general on Jan. 2 in Baghdad, knocking global stocks off a rally spurred in late 2019 on hopes a trade deal would be signed. Markets have rebounded as both Tehran and Washington desisted from further escalation after Iran retaliated for the killing with a missile attack on U.S. troops in Iraq.
Investors are waiting for corporate results that start in earnest this week with large U.S. banks, including Citigroup Inc <C.N>, JPMorgan Chase & Co <JPM.N> and Wells Fargo & Co <WFC.N>, due to report on Tuesday. Excluding energy, fourth-quarter earnings growth estimates are 1.9%, according to Refinitiv.
"It's put up or shut up time," said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey. "We've priced in a big rally, we expect growth and now it's time to see it. If we have a good earnings season, then it will be great."
Saluzzi said, however, that he would not be surprised if U.S. equities enter a "bit of a correction" despite a strong economic outlook, as they trade at almost 19 times expected earnings in 2020.
"Everything's humming along," he added. "With that said, it doesn't take much to bang down on a market that is fully valued and had quite a run. Let's not kid ourselves."
The Dow Jones Industrial Average <.DJI> rose 83.28 points, or 0.29%, to 28,907.05. The S&P 500 <.SPX> gained 22.78 points, or 0.70%, to 3,288.13 and the Nasdaq Composite <.IXIC> added 95.07 points, or 1.04%, to 9,273.93.
Facebook Inc <FB.O>, Microsoft <MSFT.O> and Apple Inc <AAPL.O> provided the biggest lift both to the S&P 500 and Nasdaq composite.
The pan-European STOXX 600 index <.STOXX> lost 0.18%.
Renault SA <RENA.PA> fell to a six-year low after a media report said Japan's Nissan Motor Co Ltd <7201.T> had accelerated secret contingency planning for a potential split from the French carmaker.
Other European automobile stocks <.SXAP> also fell after China's top auto body reiterated predictions that sales were likely to shrink for the third consecutive year in 2020.
U.S. government bond prices fell, with the price of the 10-year Treasury note <US10YT=RR> down 4/32 to push its yield up to 1.8406%.
Yields on 10-year German bunds <DE10YT=RR> rose to -0.19%, while yields on the German two-year government bond hit a nine-month high ahead of the signing of the U.S.-China trade deal.
In currency markets, the offshore Chinese yuan <CNH=> hit a 5-1/2-month high and the yen dropped to a 7-1/2-month low as sentiment rose on the trade outlook.
The dollar index <.DXY> rose 0.03%, with the euro <EUR=> up 0.13% to $1.1134. The yen <JPY=> weakened 0.44% versus the greenback at 109.94 per dollar.
Oil prices fell about 1% as Middle East tensions eased and investors turned their focus to lackluster seasonal demand following a bearish U.S. report last week of a large increase in gasoline stocks. [O/R]
Brent crude <LCOc1> settled down 78 cents at $64.20 a barrel, while West Texas Intermediate crude <CLc1> slid 96 cents to settle at $58.08 a barrel.
Gold, considered a safe haven during political and economic turmoil, rose last week to an almost seven-year peak of $1,610.90 an ounce after a U.S. drone strike killed a top Iranian commander in Baghdad and Iran launched missiles against U.S. troops in Iraq in retaliation.
U.S. gold futures <GCcv1> settled down 0.6% at $1,550.60 an ounce.
(Reporting by Herbert Lash; Editing by Alison Williams, Richard Chang and Dan Grebler)