Russia leads stocks rally; bond yields tick up

NEW YORK (Reuters) - A global gauge of equities rose for a second day on Monday, posting its largest daily advance in four months as investors bet on a reduced risk of direct conflict between Russia and Ukraine while tensions in Gaza eased as a new 72-hour truce appeared to be holding.

In a continued exodus from safety assets, the yields of U.S. debt rose slightly as investors sold bonds, nudging prices down. Spot gold prices also fell.

An index of Russian stocks jumped 2.8 percent after sliding over the past four weeks.

On Monday, the Kremlin ruled out a unilateral humanitarian operation in eastern Ukraine, which NATO had feared would serve as a cover for Moscow to invade its neighbor. Still, Russia said it was sending an aid convoy to Ukraine in collaboration with representatives of the International Committee of the Red Cross.

NATO, however, still sees a "high probability" of a Russian invasion after it said some 20,000 Russian troops massed on the nearby border. Kiev had the number at 45,000 Russian troops.

Investors also monitored Iraq, where the United States recently launched air strikes targeting Islamic State fighters marching on the country's Kurdish capital. It was unclear whether Nuri al-Maliki would bow to U.S. and Iranian pressure to step aside after Iraq's president named a new prime minister.

"At least for the time being, the situation in Ukraine appears fairly contained," said Eric Teal, chief investment officer of First Citizens Bancshares Inc in Raleigh, North Carolina, adding that "despite some of the military unrest, the Iraqi crisis looks to be going on a more limited scope and not having a significant impact on the commodity market."

U.S. stocks also got a lift from comments by Federal Reserve Vice Chairman Stanley Fischer, who said long-run annual growth in the United States may now be perhaps as low as 2 percent, a full percentage point below the estimate of Fed policymakers as recently as 2009. His remarks may cool more hawkish expectations that the Fed is ready to start a tightening cycle in monetary policy sooner than many in markets expect.

The Dow Jones industrial average rose 52.04 points or 0.31 percent, to 16,605.97. The S&P 500 gained 10.18 points or 0.53 percent, to 1,941.77. The Nasdaq Composite added 37.52 points or 0.86 percent, to 4,408.42.

An MSCI index of stocks traded in major markets around the world shot up 0.9 percent, though it was still down 3 percent from a record closing high set early in July.

The pan-European FTSEurofirst 300 index jumped 1.3 percent after losing 2 percent last week.

Yields on 10-year U.S. debt retraced from last week's 14-month lows following a 72-hour truce between Israelis and Palestinians as both sides sought to end their month-old war in Gaza.

On below-average volume, the yield on the 10-year U.S. Treasury note was last at 2.4203 percent, up 5 basis points for the day. On Friday, it briefly fell to 2.349 percent, a level not seen since June 2013.

The euro remained under pressure against the U.S. dollar on expectations of monetary policy easing from the European Central Bank and the effect of sanctions on Russia.

"The euro remains in a sell-the-rally mode as growth in the region is threatened by the ongoing conflict with Russia, which is likely to have a particularly negative impact on German growth," said Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York.

Germany is Russia's largest trading partner in the European Union. EU sanctions announced last month restrict the export to Russia of equipment to modernize the oil industry and prohibit the sale of machinery, electronics and other civilian products that can be used for military or defense purposes.

The euro was down 0.2 percent on the day against the dollar at $1.3386.

U.S. crude oil and Brent crude futures were mixed, with U.S. crude ticking up 21 cents to $97.86 per barrel and Brent crude edging down 17 cents to $104.85.

Spot gold slipped 0.2 percent to $1,306 an ounce.

(Additional reporting by Gertrude Chavez-Dreyfuss, Ryan Vlastelica and Richard Leong; Editing by Jan Paschal)

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