U.S. shares rise, yields drop as rate fears ebb

By Hilary Russ

NEW YORK (Reuters) - Most U.S. stocks advanced on Thursday, rebounding from a day earlier, and bond yields eased off highs following more cautious talk about the potential for interest rate increases this year.

Oil prices also rose, in part because the U.S. dollar hit session lows in morning trading after having touched a 10-day high, as the euro was boosted by minutes from the European Central Bank's most recent policy meeting.

Major equity indexes, on track to snap a recent spate of declines, were also buoyed by gains in industrials and energy shares.

Comments from St. Louis Fed President James Bullard on Thursday appeared to ease some investor concerns about the Federal Reserve's latest meeting.

Minutes from that meeting, released on Wednesday, showed policymakers were more confident about the need to keep raising U.S. interest rates, with most believing inflation would climb.

But Bullard told CNBC on Thursday that central bankers need to be careful not to increase rates too quickly this year because that could slow the economy.

"Bullard made a comment on rates. That's what has given the market a reason to see a little bit of a positive future," said Robert Pavlik, chief investment strategist at SlateStone Wealth in New York.

"After yesterday's Fed minutes, the market is watching some of these Fed presidents' speeches more closely," said Lindsey Bell, investment strategist at CFRA Research in New York. "People are just looking for any clue they can about rate hikes going forward, so they are taking every word that these guys say to heart."

Benchmark U.S. Treasury 10-year yields <US10YT=RR > slipped from their four-year high hit in the previous session. The notes last rose 6/32 in price to yield 2.9207 percent, from 2.941 percent late on Wednesday.

Bond prices, which usually move inversely to yields, pared gains after the U.S. government sold new seven-year notes to slightly soft demand, the final sale of $258 billion in debt this week.

The Dow Jones Industrial Average rose 164.7 points, or 0.66 percent, to 24,962.48; the S&P 500 gained 2.63 points, or 0.10 percent, to 2,703.96; and the Nasdaq Composite dropped 8.14 points, or 0.11 percent, to 7,210.09.

MSCI's gauge of stocks across the globe shed 0.10 percent.

EUROPEAN SHARES, DOLLAR SLIP

European shares dipped. A flurry of corporate results failed to lift sentiment after speculation about U.S. interest rates soured risk appetite globally.

The pan-European FTSEurofirst 300 index lost 0.15 percent and emerging market stocks fell 0.64 percent.

The latest minutes from the ECB showed it retaining its dovish stance and said even changes in communication would be "premature."

In Germany, Europe's biggest economy, data showed business confidence fell more than expected in February.

Though Germany is set for solid growth in the first quarter, diverging monetary policy expectations with the United States sent the "trans-Atlantic spread" between German and U.S. 10-year borrowing costs to 222 bps, the highest in more than a year.

The U.S. dollar slipped against a basket of major currencies as a rally from a three-year low last week ran out of steam, and heightened volatility led investors to favour the Japanese yen, considered a safe haven currency, sending it up.

The dollar index fell 0.25 percent, with the euro up 0.36 percent to $1.2326. The Japanese yen strengthened 0.96 percent versus the greenback to 106.75 per dollar.

Oil prices rose to two-week highs, boosted by the weaker dollar and data showing a surprise draw in U.S. crude inventories and the weaker dollar.

U.S. crude rose 1.65 percent to $62.70 per barrel and Brent was last at $66.30, up 1.35 percent on the day.

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(Additional reporting by Sujata Rao and Amanda Cooper in London, Saqib Iqbal Ahmed, Chuck Mikolajczak, Stephanie Kelly and Karen Brettell in New York; Editing by Bernadette Baum and Jonathan Oatis)