Bond prices rally on growth fears, oil down, stocks rebound

NEW YORK (Reuters) - A rebound on Wall Street buoyed global equity markets on Tuesday, but lingering anxiety over world economic growth pushed more investors into safe-haven U.S. and German debt and slammed oil prices again.

Worries about a slowing global economy and fears of Ebola have made markets more volatile. The CBOE Volatility Index, or VIX, the market's preferred gauge of anxiety, hit a high on Monday not seen since early June 2012. With Wall Street rebounding, the VIX fell 9 percent to 22.39.

An MSCI gauge of major stocks worldwide was up 0.3 percent after hitting an 8-month low earlier in the session.

Investors have turned more defensive due to worries about the U.S. Federal Reserve ending its bond-buying stimulus later this month, mounting risks of recession in the euro zone and a floundering Japanese economy.

These fears have pushed U.S. and German bond prices higher. The German Economy Ministry sharply cut its forecasts for economic growth for 2014 and 2015, and business sentiment fell in Europe's largest economy.

"You've seen global growth expectations come down a lot so yields in Europe are way down," said Court Hoover, director of research at JA Forlines Global Investment Management in Locust Valley, New York.

"Even if some of the data in the U.S. isn't looking all that bad, the fact that Europe is likely going back into recession, Japan is going back into recession, that drags down U.S. yields in sympathy and that process can continue."

Benchmark U.S. Treasuries yields fell as low as 2.176 percent, lowest in 16 months, while yields on German 10-year debt dropped to a record low.

Brent crude slid below $87 a barrel after the International Energy Agency cut estimates for oil demand this year and next. It was Brent's lowest price since late 2010.

"Recent price drops appear both supply and demand driven," the IEA said in its monthly oil market report. "Further oil price drops would likely be needed for supply to take a hit, or for demand growth to get a lift."

Brent futures last traded down 2.8 percent at $86.40 a barrel, having hit a near four-year low of $86.17.

The Dow Jones industrial average rose 127.52 points, or 0.78 percent, to 16,448.59, the S&P 500 gained 20.36 points, or 1.09 percent, to 1,895.1 and the Nasdaq Composite added 58.55 points, or 1.39 percent, to 4,272.21.

Citigroup was among the S&P 500's biggest contributors to the index's gains, rising 2.3 percent after reporting results that exceeded estimates.

"I?m not sure the earnings have to be unbelievably strong but simply just reflecting some growth would help blunt the momentum of the market moving down," said Rick Meckler, president of investment firm LibertyView Capital Management in Jersey City, New Jersey.

Japanese stocks tumbled 2.4 percent and stocks in Europe dipped 0.2 percent, but the S&P 500 edged up after falling 4.8 percent in the previous three sessions as focus shifted to corporate earnings.

DOLLAR RISES, CRUDE SINKS

The U.S. dollar bounced back as the euro sank after soft data including below-forecast readings on euro zone industrial output and the ZEW indicator of German investor sentiment.

The dollar index, which measures the U.S. currency against a basket of others , rebounded a day after its largest one-day drop in a year.

The euro handed back almost all the previous day's 1-percent rise against the dollar after unexpectedly sharp declines in industrial output and investor morale underlined economic frailty and falling prices.

The euro last traded down 0.6 percent at $1.2670. The yen dipped 0.1 percent to 106.92 per dollar.

Gold retreated from four-week highs as the U.S. dollar strengthened and data showed inflation running far below targets in various European countries. Spot gold last traded at $1,234.45 an ounce, down 0.2 percent.

Copper gained 1 percent on confidence about the outlook for demand from top consumer China following its plans to step-up infrastructure projects.

(Additional reporting by Richard Leong, Yasmeen Abutaleb, Chuck Mikolajczak and Sam Forgione)