GLOBAL MARKETS-Stocks skid, dollar and U.S. yields rise on rate outlook jitters

(Updates prices)

By Alun John and Tom Westbrook

LONDON/SINGAPORE, Jan 16 (Reuters) - World shares slipped and the dollar and U.S. bond yields rose on Tuesday as markets reduced bets that global interest rate cuts could come as early as March, partly nudged by hawkish remarks from central bank policy makers in Europe

Investors were also digesting a raft of other political and geopolitical developments, including Donald Trump securing a resounding win in the first 2024 U.S. Republican presidential contest in Iowa on Monday, and developments in the Red Sea, Gaza and Ukraine.

Europe's STOXX 600 index and MSCI's broadest index of Asia-Pacific shares outside Japan both dropped to their lowest since mid December, with the European benchmark last down about 0.6%, moving further away from a two-year peak at the start of January.

U.S. S&P 500 futures were down 0.5%, suggesting the benchmark will not immediately renew its attempt on a fresh all time high. On Friday, it got as close as 0.3% to a record intraday high hit in early 2022. U.S. markets were closed for the Martin Luther King Jr. holiday on Monday.

Gains in stocks were underpinned by sharp declines in bond yields in November and December as investors brought forward expectations of rate cuts by central banks.

Those have since reversed somewhat and on Tuesday, the benchmark 10-year U.S. Treasury yield was up 6 basis points (bps) just above 4%. Germany's 10 year yield was flat at 2.20%.

Market pricing now reflects around a 70% chance of a Federal Reserve rate cut in March, down from over 80% a week ago, and for the first European Central Bank (ECB) rate cut to come in April, with traders having earlier expected March.

Contributing to those revisions, ECB officials have been out in force this week, with hawkish speakers such as Bundesbank president Joachim Nagel on Monday pushing back firmly on expectations of rate cuts.

French central bank Governor Francois Villeroy de Galhau said on Tuesday the ECB's next move would be a rate cut but its timing was an open question.

"Rates are likely to be cut but not as early as markets currently price in," said Guy Miller, chief market strategist and economist at Zurich Insurance Group.

"Our view is that inflation will come down towards targets over the course of the year, but in a choppy manner."

Federal Reserve Board Governor Christopher Waller's speech on the economic outlook at 1600 GMT will be closely watched too; markets heartily cheered a shift in his hawkish views in November.

EARNINGS AND GEOPOLITICS

Investors are also keeping a close eye on fourth quarter corporate results. Some major U.S. banks kicked off earnings season last Friday reporting lower profits, and Goldman Sachs and Morgan Stanley report later Tuesday.

"You've got some darlings that are very much loved, that re-rated in the last couple of months on the back of that rally as everyone thought we'd hit peak interest rates. The question is, are we happy that earnings are going to meet those expectations?" said Georgina Cooper, global equities portfolio manager at Newton Investment Management.

"We saw last year quite a lot of those highly rated names can come off very quickly if they don't meet expectations."

There was also plenty of news around the world to keep on top of. For example, Japanese shipping operator Nippon Yusen suspended sailings through the Red Sea on Tuesday after Yemen's Houthi movement vowed to step up attacks on vessels in the region.

Oil has been supported by the instability in the shipping lane; Brent was last up 0.6% at 78.62 a barrel.

Elsewhere in commodities, iron ore extended falls to touch more than five-week lows in Singapore as China's decision on Monday to skip an expected rate cut unnerved investors, dragging on mining stocks in Europe and Australia as well as the Australian dollar, which was off 0.8%.

The pound was another underperformer in currency markets, down 0.6% against the dollar at $1.2647 after data showed that growth in British wages slowed in the three months through November, supporting the idea that the Bank of England will cut interest rates sharply this year.

That was a contributor, along with the higher U.S. yields, in pushing the dollar index, which ranks the greenback against six peers, up 0.52% to a one month high.

Gold dipped 0.76% to $2,039 an ounce.

(Reporting by Tom Westbrook in Singapore and Alun John in London; Editing by Bernadette Baum and Mark Potter)