After volatile January, world stocks start February on a firm note

World stocks looked set to leave a volatile January in the past on Tuesday, starting a new month on firmer ground as a slew of reassuring comments from Federal Reserve officials helped calm rate-hike jitters.

A pan-European equity index opened more than 1% higher, U.S. stock futures rallied and Japan's blue-chip Nikkei rose 0.3%, buoyed by Wall Street's overnight gains. [.T] [.N]

Indeed, U.S. stocks closed higher on Monday, led by a 3.5% rise for the tech-heavy Nasdaq. It meant the Nasdaq ended January on a strong note after narrowly avoiding its worst ever start to the year.

The S&P 500 meanwhile recorded its weakest January performance since 2009.

Fed policymakers appeared to confirm on Monday that interest rates would rise in March, but spoke cautiously about what might follow.

In what sounded like a well-orchestrated chorus, four Fed officials said they felt it was time for the U.S. central bank to begin removing support from a strongly growing economy, where inflation is at its highest in four decades.

The Treasury's top economist said inflationary pressures should ease in 2022 due to weaker goods demand, easing supply bottlenecks and a receding coronavirus pandemic.

John Flahive, head of fixed income investments at BNY Mellon Wealth Management, said it was the scale of the pricing in of anticipated U.S. rate hikes that had unsettled markets.

"It was just a few months ago that everybody thought that the Federal Reserve would be relatively patient with monetary policy, might move three times, maybe four times," he said. "Now the markets begin to price in four, plus maybe even five (Fed rate moves). And so everyone was getting a little bit nervous."

Push back

Australia's central bank weighed in on Tuesday. It ended its A$275 billion ($194.40 billion) bond buying campaign as expected, but pushed back hard on market wagers for an early rate rise.

The U.S. Institute for Supply Management's activity index out later on Tuesday could provide some sense of whether price pressures are abating for firms.

World markets, which have been rattled by rate-hike expectations, appeared to take comfort from latest central bank commentary.

Risk assets struggled in January, with global equities seeing their worst monthly performance since March 2020, at the height of the initial wave of the Covid-19 pandemic, Deutsche Bank research showed.

Growing tensions between the West and Russia over Ukraine have also weighed on risk sentiment, although they lifted oil prices, pushing Brent futures roughly 17% higher so far this year.

Brent eased a touch on Tuesday at $89 a barrel while U.S. West Texas Intermediate crude also slipped marginally at $88.08 a barrel.

British Prime Minister Boris Johnson will vow to uphold Ukraine's sovereignty on a visit to Kyiv on Tuesday as part of the West's diplomatic efforts to stop a possible Russian invasion which Moscow says there is no proof it is planning.

It comes as the United States said it is in active discussions with allies about possible U.S. troop deployments to NATO's eastern flank.

European sovereign borrowing costs were broadly steady, having shot up on Monday. [GVD/EUR]

Still, Germany's 10-year Bund yield held just above 0%, while the 10-year U.S. Treasury yields were little changed around 1.78%.

In Asia, a number of markets are closed due to the Lunar New Year holidays, including in China and South Korea.

MSCI's world equity index touched its highest level in over a week, while major bourses from London to Paris and Frankfurt were up as much as 1.24%.

On currency markets, the Australian dollar was one of the biggest movers, rebounding 0.3% after an initial hit from the Reserve Bank of Australia's dovish message. It was last trading at $0.7083.

The dollar was generally on the back foot against other major currencies as the edge came off aggressive Fed rate hike bets. The euro was last up 0.2% at $1.1258, sterling was 0.25% firmer and dollar was down 0.13% at 115 yen.

(Reporting by Dhara Ranasinghe; Editing by Raissa Kasolowsky)