By Chuck Mikolajczak
NEW YORK (Reuters) - Bond yields fell in key markets worldwide on Friday as investors moved to the safety of government debt after U.S. President Barack Obama's decision to authorize air strikes in Iraq, but most equity markets rebounded from overnight lows.
The U.S. 10-year hit its lowest yield since June 2013 and Germany's 10-year Bund fell to another record low, closing in on 1 percent. Oil rose on concern about the threat to oil supplies in Iraq.
Investors expect volatility to continue to rise, as the uncertainty surrounding the ongoing conflict in Ukraine and worsening conditions in Iraq will weigh heavily over the weekend.
But U.S. equities managed to climb, with major indexes hitting session highs after an Interfax news agency report that Russia's Defense Ministry said it had finished military exercises it was conducting near the border with Ukraine, serving to lessen investor nervousness.
"What is going on here is right now these geopolitical events are kind of limited to these regions and haven?t really spread materially to the U.S. or other major markets, but there is the potential for that to happen," said Jeff Kravetz, Regional Investment Director at U.S. Bank Wealth Management in Phoenix, Arizona.
"It kind of defies logic that we?ve got the stock market rallying today and going into the weekend that we don?t have traders making more conservative moves."
The Dow Jones industrial average rose 155.61 points or 0.95 percent, to 16,523.88, the S&P 500 gained 17.64 points or 0.92 percent, to 1,927.21 and the Nasdaq Composite added 32.92 points or 0.76 percent, to 4,367.89.
Obama said in an address that he authorized "targeted" strikes to protect the besieged Yazidi minority and U.S. personnel in Iraq. Hours after his statements, U.S. military aircraft bombed Islamic State artillery attacking Kurdish forces near Arbil, Iraq.
Yields on 10-year Treasuries and German Bunds dropped as low as 2.349 and 1.023 percent, respectively. The drops marked a 14-month low in yields for the U.S. note and a third straight record low for the German Bund.
Equity markets rebounded from losses overnight, with the MSCI All World Index up 0.1 percent. Asian markets bore the brunt of the selling, with Tokyo's Nikkei 225 losing 3 percent.
A broad index of European stocks ended down 0.7 percent and Germany's DAX Index lost 0.3 percent, but was off the day's worst levels.
The intensifying risks in one of the world's big oil-producing countries jolted petroleum markets, sending U.S. crude up more than $1 to $98.45 a barrel and Brent to $106.39.
But oil prices later trimmed gains, with U.S. crude last up 25 cents to $97.59, while Brent turned lower to fall 61 cents at $104.83 as analysts said the strikes may lower the risk of supply disruptions.
Fighting also resumed in Gaza between Palestinian militants and Israel.
NATO called for Russia to "step back from the brink" of war in Ukraine, while a Russian official said the nation would "make all efforts" to de-escalate the conflict.
The dollar was off its lows but remained 0.2 percent down having hit two-week low of 101.49 against the safe-haven Japanese yen.
(Additonal reporting by Tricia Wright in London; Editing by Nick Zieminski)
