Bond prices rally on growth fears, oil down

NEW YORK (Reuters) - Lingering anxiety over world economic growth pushed investors into safe-haven U.S. and German debt on Tuesday and oil prices tumbled, but Wall Street stocks staged a rebound, buoying a measure of global equity markets.

Worries about a slowing global economy and fears of Ebola have made investors skittish of late. On Monday, the CBOE Volatility Index, or VIX, the equity market's preferred gauge of anxiety, hit its highest level since June 2012. With Wall Street's rebound on Tuesday, the VIX fell 9.3 percent to 22.35.

An MSCI gauge of major stocks worldwide was up 0.3 percent after hitting an eight-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 also 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, the lowest level in 16 months, while yields on German 10-year debt touched a record low of 0.836 percent.

The U.S. bond market was closed on Monday for the Columbus Day holiday.

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 2.6 percent at $86.59 a barrel, having hit a near four-year low of $86.17.

Japanese stocks tumbled 2.4 percent and stocks in Europe closed little changed after hitting their lowest mark since February. But on Wall Street the S&P 500 bounced back after falling 4.8 percent in the previous three sessions as focus shifted to corporate earnings.

Citigroup was among the S&P 500's biggest point gainers, rising 3 percent after reporting results that exceeded estimates.

"In an environment that is oversold to begin with, it doesn?t take much to effectuate a shift in market," said Art Hogan, chief market strategist at Wunderlich Securities in New York.

"It?s hard to know how long that holds, but at some point in time the market shifts its focus from the global macro to the micro and that is where we are today ? we are looking at this on a company-by-company basis."

The Dow Jones industrial average rose 102.45 points, or 0.63 percent, to 16,423.52, the S&P 500 gained 17.27 points, or 0.92 percent, to 1,892.01, and the Nasdaq Composite added 44.46 points, or 1.06 percent, to 4,258.11.

DOLLAR RISES, CRUDE SINKS

The U.S. dollar index rose 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 , gained 0.3 percent after falling as much as 1 percent on Monday.

The euro handed back almost all the previous day's rise against the greenback.

The euro recently traded down 0.7 percent at $1.2663. The yen dipped 0.2 percent to 107.05 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 near $1,234 an ounce, down 0.2 percent.

Copper gained 1.4 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 in New York; Editing by Leslie Adler)